Why Bhagiradha Chemicals & Industries' (NSE:BHAGCHEM) Shaky Earnings Are Just The Beginning Of Its Problems

The market rallied behind Bhagiradha Chemicals & Industries Limited's (NSE:BHAGCHEM) stock, leading do a rise in the share price after its recent weak earnings report. While shareholders may be willing to overlook soft profit numbers, we believe that they should also be taking into account some other factors which may be cause for concern.

See our latest analysis for Bhagiradha Chemicals & Industries

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. In fact, Bhagiradha Chemicals & Industries increased the number of shares on issue by 20% over the last twelve months by issuing new shares. 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. Check out Bhagiradha Chemicals & Industries' historical EPS growth by clicking on this link.

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

Bhagiradha Chemicals & Industries' net profit dropped by 22% per year over the last three years. Even looking at the last year, profit was still down 60%. Sadly, earnings per share fell further, down a full 61% in that time. And so, you can see quite clearly that dilution is influencing shareholder earnings.

If Bhagiradha Chemicals & Industries' EPS can grow over time then that drastically improves the chances of the share price moving in the same direction. 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 issued shares during the year, and that means its EPS performance lags its net income growth. Therefore, it seems possible to us that Bhagiradha Chemicals & Industries' true underlying earnings power is actually less than its statutory profit. Sadly, its EPS was down over the last twelve months. 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 want to do dive deeper into Bhagiradha Chemicals & Industries, you'd also look into what risks it is currently facing. In terms of investment risks, we've identified 2 warning signs with Bhagiradha Chemicals & Industries, and understanding them should be part of your investment process.

This note has only looked at a single factor that sheds light on the nature of Bhagiradha Chemicals & Industries' 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. 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 with significant insider holdings to be useful.

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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.