Shyam Metalics and Energy (NSE:SHYAMMETL) Posted Healthy Earnings But There Are Some Other Factors To Be Aware Of

Shyam Metalics and Energy Limited (NSE:SHYAMMETL) just reported some strong earnings, and the market reacted accordingly with a healthy uplift in the share price. We did some analysis and think that investors are missing some details hidden beneath the profit numbers.

View our latest analysis for Shyam Metalics and Energy

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. In fact, Shyam Metalics and Energy increased the number of shares on issue by 9.1% over the last twelve months by issuing new shares. As a result, its net income is now split between 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 Shyam Metalics and Energy's EPS by clicking here.

A Look At The Impact Of Shyam Metalics and Energy's Dilution On Its Earnings Per Share (EPS)

Shyam Metalics and Energy has improved its profit over the last three years, with an annualized gain of 23% in that time. But EPS was only up 9.5% per year, in the exact same period. And at a glance the 21% gain in profit over the last year impresses. On the other hand, earnings per share are only up 18% in that time. And so, you can see quite clearly that dilution is influencing shareholder earnings.

Changes in the share price do tend to reflect changes in earnings per share, in the long run. So it will certainly be a positive for shareholders if Shyam Metalics and Energy can grow EPS persistently. 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.

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

Our Take On Shyam Metalics and Energy's Profit Performance

Shyam Metalics and Energy 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 Shyam Metalics and Energy's true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 9.5% per annum growth in EPS for the last three. 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. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. Case in point: We've spotted 2 warning signs for Shyam Metalics and Energy you should be aware of.

This note has only looked at a single factor that sheds light on the nature of Shyam Metalics and Energy's profit. But there are plenty of other ways to inform your opinion of a company. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.