Poly Medicure's (NSE:POLYMED) Solid Profits Have Weak Fundamentals

Poly Medicure Limited's (NSE:POLYMED) robust earnings report didn't manage to move the market for its stock. Our analysis suggests that shareholders have noticed something concerning in the numbers.

View our latest analysis for Poly Medicure

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. As it happens, Poly Medicure issued 8.6% more new shares 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. Check out Poly Medicure's historical EPS growth by clicking on this link.

How Is Dilution Impacting Poly Medicure's Earnings Per Share? (EPS)

Poly Medicure has improved its profit over the last three years, with an annualized gain of 93% in that time. And the 42% profit boost in the last year certainly seems impressive at first glance. But in comparison, EPS only increased by 40% over the same period. And so, you can see quite clearly that dilution is influencing shareholder earnings.

Changes in the share price do tend to reflect changes in earnings per share, in the long run. So Poly Medicure shareholders will want to see that EPS figure continue to increase. 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.

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 Poly Medicure's Profit Performance

Each Poly Medicure share now gets a meaningfully smaller slice of its overall profit, due to dilution of existing shareholders. Therefore, it seems possible to us that Poly Medicure'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. 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 Poly Medicure as a business, it's important to be aware of any risks it's facing. Every company has risks, and we've spotted 2 warning signs for Poly Medicure you should know about.

This note has only looked at a single factor that sheds light on the nature of Poly Medicure's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to 'follow the money' and search out stocks that insiders are buying. 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. 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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