Investors Shouldn't Be Too Comfortable With Sarveshwar Foods' (NSE:SARVESHWAR) Earnings

Despite posting some strong earnings, the market for Sarveshwar Foods Limited's (NSE:SARVESHWAR) stock hasn't moved much. We did some digging, and we found some concerning factors in the details.

Check out our latest analysis for Sarveshwar Foods

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. In fact, Sarveshwar Foods increased the number of shares on issue by 13% over the last twelve months by issuing new shares. Therefore, each share now receives a smaller portion of profit. Per share metrics like EPS help us understand how much actual shareholders are benefitting from the company's profits, while the net income level gives us a better view of the company's absolute size. Check out Sarveshwar Foods' historical EPS growth by clicking on this link.

A Look At The Impact Of Sarveshwar Foods' Dilution On Its Earnings Per Share (EPS)

As you can see above, Sarveshwar Foods has been growing its net income over the last few years, with an annualized gain of 220% over three years. And the 115% profit boost in the last year certainly seems impressive at first glance. On the other hand, earnings per share are only up 124% in that time. 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 it will certainly be a positive for shareholders if Sarveshwar Foods can grow EPS persistently. However, if its profit increases while its earnings per share stay flat (or even fall) then shareholders might not see much benefit. 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 Sarveshwar Foods.

Our Take On Sarveshwar Foods' Profit Performance

Each Sarveshwar Foods share now gets a meaningfully smaller slice of its overall profit, due to dilution of existing shareholders. Because of this, we think that it may be that Sarveshwar Foods' statutory profits are better than its underlying earnings power. But the good news is that its EPS growth over the last three years has been very impressive. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. If you'd like to know more about Sarveshwar Foods as a business, it's important to be aware of any risks it's facing. Our analysis shows 3 warning signs for Sarveshwar Foods (2 shouldn't be ignored!) and we strongly recommend you look at them before investing.

Today we've zoomed in on a single data point to better understand the nature of Sarveshwar Foods' 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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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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.