Manaksia Coated Metals & Industries' (NSE:MANAKCOAT) Promising Earnings May Rest On Soft Foundations

Despite posting some strong earnings, the market for Manaksia Coated Metals & Industries Limited's (NSE:MANAKCOAT) stock hasn't moved much. Our analysis suggests that shareholders have noticed something concerning in the numbers.

View our latest analysis for Manaksia Coated Metals & Industries

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. In fact, Manaksia Coated Metals & Industries increased the number of shares on issue by 13% over the last twelve months by issuing new shares. That means its earnings are split among a greater number of shares. 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 Manaksia Coated Metals & Industries' EPS by clicking here.

How Is Dilution Impacting Manaksia Coated Metals & Industries' Earnings Per Share (EPS)?

As you can see above, Manaksia Coated Metals & Industries has been growing its net income over the last few years, with an annualized gain of 76% over three years. But EPS was only up 60% per year, in the exact same period. And the 43% profit boost in the last year certainly seems impressive at first glance. On the other hand, earnings per share are only up 31% in that time. Therefore, the dilution is having a noteworthy influence on shareholder returns.

In the long term, earnings per share growth should beget share price growth. So it will certainly be a positive for shareholders if Manaksia Coated Metals & Industries 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 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 Manaksia Coated Metals & Industries.

Our Take On Manaksia Coated Metals & Industries' Profit Performance

Each Manaksia Coated Metals & Industries 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 Manaksia Coated Metals & Industries' statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 60% per annum growth in EPS for the last three. 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. Be aware that Manaksia Coated Metals & Industries is showing 3 warning signs in our investment analysis and 1 of those is a bit concerning...

Today we've zoomed in on a single data point to better understand the nature of Manaksia Coated Metals & 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 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.