Robust Earnings May Not Tell The Whole Story For Bhagiradha Chemicals & Industries (NSE:BHAGCHEM)

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

See our latest analysis for Bhagiradha Chemicals & Industries

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. As it happens, Bhagiradha Chemicals & Industries issued 26% more new shares over the last year. Therefore, each share now receives a smaller portion of profit. 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 Bhagiradha Chemicals & Industries' EPS by clicking here.

How Is Dilution Impacting Bhagiradha Chemicals & Industries' Earnings Per Share? (EPS)

As you can see above, Bhagiradha Chemicals & Industries has been growing its net income over the last few years, with an annualized gain of 95% over three years. And at a glance the 53% gain in profit over the last year impresses. But in comparison, EPS only increased by 53% over the same period. And so, you can see quite clearly that dilution is having a rather significant impact on shareholders.

Changes in the share price do tend to reflect changes in earnings per share, in the long run. So Bhagiradha Chemicals & Industries 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.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Bhagiradha Chemicals & Industries.

Our Take On Bhagiradha Chemicals & Industries' Profit Performance

Bhagiradha Chemicals & Industries shareholders should keep in mind how many new shares it is issuing, because, dilution clearly has the power to severely impact shareholder returns. Because of this, we think that it may be that Bhagiradha Chemicals & Industries' 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. 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. For example, Bhagiradha Chemicals & Industries has 4 warning signs (and 1 which is a bit unpleasant) we think you should know about.

Today we've zoomed in on a single data point to better understand the nature of Bhagiradha Chemicals & Industries' 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. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.