Robust Earnings May Not Tell The Whole Story For Phillips Carbon Black (NSE:PHILIPCARB)

Phillips Carbon Black Limited (NSE:PHILIPCARB) announced strong profits, but the stock was stagnant. We did some digging, and we found some concerning factors in the details.

View our latest analysis for Phillips Carbon Black

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. In fact, Phillips Carbon Black increased the number of shares on issue by 9.5% over the last twelve months by issuing new shares. Therefore, each share now receives a smaller portion of profit. 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. You can see a chart of Phillips Carbon Black's EPS by clicking here.

A Look At The Impact Of Phillips Carbon Black's Dilution on Its Earnings Per Share (EPS).

Phillips Carbon Black has improved its profit over the last three years, with an annualized gain of 56% in that time. And the 136% profit boost in the last year certainly seems impressive at first glance. On the other hand, earnings per share are only up 136% in that time. Therefore, the dilution is having a noteworthy influence on shareholder returns.

Changes in the share price do tend to reflect changes in earnings per share, in the long run. So Phillips Carbon Black 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 that reason, you could say that EPS is more important that net income in the long run, assuming the goal is to assess whether a company's share price might grow.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Phillips Carbon Black.

Our Take On Phillips Carbon Black's Profit Performance

Phillips Carbon Black shareholders should keep in mind how many new shares it is issuing, because, dilution clearly has the power to severely impact shareholder returns. Therefore, it seems possible to us that Phillips Carbon Black's true underlying earnings power is actually less than its statutory profit. 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. 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. For example, we've discovered 3 warning signs that you should run your eye over to get a better picture of Phillips Carbon Black.

Today we've zoomed in on a single data point to better understand the nature of Phillips Carbon Black'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.

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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