Robust Earnings May Not Tell The Whole Story For Hi-Tech Pipes (NSE:HITECH)

Hi-Tech Pipes Limited (NSE:HITECH) announced strong profits, but the stock was stagnant. Our analysis suggests that shareholders have noticed something concerning in the numbers.

View our latest analysis for Hi-Tech Pipes

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. As it happens, Hi-Tech Pipes issued 7.5% more new shares over the last year. As a result, its net income is now split between a greater number of shares. To celebrate net income while ignoring dilution is like rejoicing because you have a single slice of a larger pizza, but ignoring the fact that the pizza is now cut into many more slices. Check out Hi-Tech Pipes' historical EPS growth by clicking on this link.

How Is Dilution Impacting Hi-Tech Pipes' Earnings Per Share? (EPS)

As you can see above, Hi-Tech Pipes has been growing its net income over the last few years, with an annualized gain of 48% over three years. In comparison, earnings per share only gained 34% over the same period. And at a glance the 119% gain in profit over the last year impresses. On the other hand, earnings per share are only up 106% in that time. And so, you can see quite clearly that dilution is influencing shareholder earnings.

In the long term, earnings per share growth should beget share price growth. So Hi-Tech Pipes shareholders will want to see that EPS figure continue to increase. But on the other hand, we'd be far less excited to learn profit (but not EPS) was improving. 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 Hi-Tech Pipes.

Our Take On Hi-Tech Pipes' Profit Performance

Each Hi-Tech Pipes 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 Hi-Tech Pipes' statutory profits are better than its underlying earnings power. But the happy news is that, while acknowledging we have to look beyond the statutory numbers, those numbers are still improving, with EPS growing at a very high rate over the last year. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. Be aware that Hi-Tech Pipes is showing 3 warning signs in our investment analysis and 1 of those can't be ignored...

This note has only looked at a single factor that sheds light on the nature of Hi-Tech Pipes' 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.

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.

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