Weak Statutory Earnings May Not Tell The Whole Story For Pondy Oxides And Chemicals (NSE:POCL)

Investors were disappointed by Pondy Oxides And Chemicals Limited's (NSE:POCL ) latest earnings release. We did some analysis, and found that there are some reasons to be cautious about the headline numbers.

Check out our latest analysis for Pondy Oxides And Chemicals

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, Pondy Oxides And Chemicals issued 17% more new shares over the last year. Therefore, each share now receives a smaller portion of profit. Per share metrics like EPS help us understand how much actual shareholders are benefitting from the company's profits, while the net income level gives us a better view of the company's absolute size. Check out Pondy Oxides And Chemicals' historical EPS growth by clicking on this link.

A Look At The Impact Of Pondy Oxides And Chemicals' Dilution On Its Earnings Per Share (EPS)

Pondy Oxides And Chemicals has improved its profit over the last three years, with an annualized gain of 196% in that time. Net profit actually dropped by 58% in the last year. But the EPS result was even worse, with the company recording a decline of 58%. So you can see that the dilution has had a bit of an impact on shareholders.

In the long term, if Pondy Oxides And Chemicals' earnings per share can increase, then the share price should too. 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 Pondy Oxides And Chemicals.

Our Take On Pondy Oxides And Chemicals' Profit Performance

Pondy Oxides And Chemicals issued shares during the year, and that means its EPS performance lags its net income growth. Because of this, we think that it may be that Pondy Oxides And Chemicals' 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. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. Case in point: We've spotted 5 warning signs for Pondy Oxides And Chemicals you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Pondy Oxides And Chemicals' 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 with high insider ownership.

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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.