Investors Shouldn't Be Too Comfortable With Texmo Pipes and Products' (NSE:TEXMOPIPES) Robust Earnings

Unsurprisingly, Texmo Pipes and Products Limited's (NSE:TEXMOPIPES) stock price was strong on the back of its healthy earnings report. We did some analysis and think that investors are missing some details hidden beneath the profit numbers.

View our latest analysis for Texmo Pipes and Products

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. Texmo Pipes and Products expanded the number of shares on issue by 11% 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 Texmo Pipes and Products' historical EPS growth by clicking on this link.

A Look At The Impact Of Texmo Pipes and Products' Dilution on Its Earnings Per Share (EPS).

Texmo Pipes and Products has improved its profit over the last three years, with an annualized gain of 6,929% in that time. But EPS was only up 6,067% per year, in the exact same period. And the 175% profit boost in the last year certainly seems impressive at first glance. But in comparison, EPS only increased by 160% over the same period. 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 Texmo Pipes and Products 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 Texmo Pipes and Products.

Our Take On Texmo Pipes and Products' Profit Performance

Texmo Pipes and Products shareholders should keep in mind how many new shares it is issuing, because, dilution clearly has the power to severely impact shareholder returns. Because of this, we think that it may be that Texmo Pipes and Products' statutory profits are better than its underlying earnings power. But on the bright side, its earnings per share have grown at an extremely impressive rate over the last three years. 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. In terms of investment risks, we've identified 3 warning signs with Texmo Pipes and Products, and understanding these should be part of your investment process.

Today we've zoomed in on a single data point to better understand the nature of Texmo Pipes and Products' profit. But there is always more to discover if you are capable of focussing your mind on minutiae. Some people consider a high return on equity to be a good sign of a quality business. 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.

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This article by Simply Wall St is general in nature. 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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