Why Parag Milk Foods' (NSE:PARAGMILK) Shaky Earnings Are Just The Beginning Of Its Problems

The subdued market reaction suggests that Parag Milk Foods Limited's (NSE:PARAGMILK) recent earnings didn't contain any surprises. We think that investors are worried about some weaknesses underlying the earnings.

View our latest analysis for Parag Milk Foods

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. Parag Milk Foods expanded the number of shares on issue by 13% over the last year. That means its earnings are split among a greater number of shares. To celebrate net income while ignoring dilution is like rejoicing because you have a single slice of a larger pizza, but ignoring the fact that the pizza is now cut into many more slices. Check out Parag Milk Foods' historical EPS growth by clicking on this link.

How Is Dilution Impacting Parag Milk Foods' Earnings Per Share? (EPS)

Unfortunately, Parag Milk Foods' profit is down 76% per year over three years. And even focusing only on the last twelve months, we see profit is down 78%. Like a sack of potatoes thrown from a delivery truck, EPS fell harder, down 78% in the same period. So you can see that the dilution has had a bit of an impact on shareholders.

In the long term, if Parag Milk Foods' earnings per share can increase, then the share price should too. 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.

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

Our Take On Parag Milk Foods' Profit Performance

Over the last year Parag Milk Foods issued new shares and so, there's a noteworthy divergence between EPS and net income growth. Therefore, it seems possible to us that Parag Milk Foods' true underlying earnings power is actually less than its statutory profit. Sadly, its EPS was down over the last twelve months. 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. For example, we've discovered 3 warning signs that you should run your eye over to get a better picture of Parag Milk Foods.

This note has only looked at a single factor that sheds light on the nature of Parag Milk Foods' profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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 that insiders are buying to be useful.

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This article by Simply Wall St is general in nature. 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.
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