Solid Earnings May Not Tell The Whole Story For Som Distilleries and Breweries (NSE:SDBL)

Som Distilleries and Breweries Limited's (NSE:SDBL ) stock didn't jump after it announced some healthy earnings. Our analysis showed that there are some concerning factors in the earnings that investors may be cautious of.

View our latest analysis for Som Distilleries and Breweries

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. Som Distilleries and Breweries expanded the number of shares on issue by 5.7% over the last year. That means its earnings are split among a greater number of shares. 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. You can see a chart of Som Distilleries and Breweries' EPS by clicking here.

How Is Dilution Impacting Som Distilleries and Breweries' Earnings Per Share (EPS)?

Three years ago, Som Distilleries and Breweries lost money. The good news is that profit was up 43% in the last twelve months. On the other hand, earnings per share are only up 33% 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 it will certainly be a positive for shareholders if Som Distilleries and Breweries 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 that reason, you could say that EPS is more important that net income in the long run, assuming the goal is to assess whether a company's share price might grow.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Som Distilleries and Breweries.

Our Take On Som Distilleries and Breweries' Profit Performance

Each Som Distilleries and Breweries share now gets a meaningfully smaller slice of its overall profit, due to dilution of existing shareholders. Therefore, it seems possible to us that Som Distilleries and Breweries' true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 33% EPS growth in the last year. 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. So while earnings quality is important, it's equally important to consider the risks facing Som Distilleries and Breweries at this point in time. While conducting our analysis, we found that Som Distilleries and Breweries has 2 warning signs and it would be unwise to ignore them.

This note has only looked at a single factor that sheds light on the nature of Som Distilleries and Breweries' 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 that insiders are buying.

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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.