Mangalam Global Enterprise's (NSE:MGEL) Profits Appear To Have Quality Issues

Mangalam Global Enterprise Limited's (NSE:MGEL ) stock didn't jump after it announced some healthy earnings. We did some digging and believe investors may be worried about some underlying factors in the report.

Our free stock report includes 3 warning signs investors should be aware of before investing in Mangalam Global Enterprise. Read for free now.

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. As it happens, Mangalam Global Enterprise issued 14% more new shares over the last year. As a result, its net income is now split between a greater number of shares. To talk about net income, without noticing earnings per share, is to be distracted by the big numbers while ignoring the smaller numbers that talk to per share value. You can see a chart of Mangalam Global Enterprise's EPS by clicking here.

A Look At The Impact Of Mangalam Global Enterprise's Dilution On Its Earnings Per Share (EPS)

As you can see above, Mangalam Global Enterprise has been growing its net income over the last few years, with an annualized gain of 437% over three years. But EPS was only up 320% per year, in the exact same period. And over the last 12 months, the company grew its profit by 14%. But in comparison, EPS only increased by 2.6% over the same period. So you can see that the dilution has had a bit of an impact on shareholders.

In the long term, earnings per share growth should beget share price growth. So Mangalam Global Enterprise shareholders will want to see that EPS figure continue to increase. But on the other hand, we'd be far less excited to learn profit (but not EPS) was improving. For the ordinary retail shareholder, EPS is a great measure to check your hypothetical "share" of the company's profit.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Mangalam Global Enterprise.

Our Take On Mangalam Global Enterprise's Profit Performance

Mangalam Global Enterprise shareholders should keep in mind how many new shares it is issuing, because, dilution clearly has the power to severely impact shareholder returns. Therefore, it seems possible to us that Mangalam Global Enterprise's true underlying earnings power is actually less than its statutory profit. But the good news is that its EPS growth over the last three years has been very impressive. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. Our analysis shows 3 warning signs for Mangalam Global Enterprise (2 are significant!) and we strongly recommend you look at these before investing.

This note has only looked at a single factor that sheds light on the nature of Mangalam Global Enterprise's profit. But there are plenty of other ways to inform your opinion of a company. Some people consider a high return on equity to be a good sign of a quality business. While it might take a little research on your behalf, you may find this free collection of companies boasting high return on equity, or this list of stocks with significant insider holdings to be useful.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.