Impressive Earnings May Not Tell The Whole Story For Vikas Ecotech (NSE:VIKASECO)

Vikas Ecotech Limited's (NSE:VIKASECO) robust earnings report didn't manage to move the market for its stock. We did some digging, and we found some concerning factors in the details.

Check out our latest analysis for Vikas Ecotech

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. Vikas Ecotech expanded the number of shares on issue by 37% over the last year. 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 Vikas Ecotech's EPS by clicking here.

A Look At The Impact Of Vikas Ecotech's Dilution On Its Earnings Per Share (EPS)

Three years ago, Vikas Ecotech lost money. On the bright side, in the last twelve months it grew profit by 114%. On the other hand, earnings per share are only up 44% over the same period. And so, you can see quite clearly that dilution is having a rather significant impact on shareholders.

Changes in the share price do tend to reflect changes in earnings per share, in the long run. So Vikas Ecotech 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 Vikas Ecotech.

Our Take On Vikas Ecotech's Profit Performance

Vikas Ecotech shareholders should keep in mind how many new shares it is issuing, because, dilution clearly has the power to severely impact shareholder returns. As a result, we think it may well be the case that Vikas Ecotech's underlying earnings power is lower than its statutory profit. The good news is that, its earnings per share increased by 44% in 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. If you want to do dive deeper into Vikas Ecotech, you'd also look into what risks it is currently facing. At Simply Wall St, we found 2 warning signs for Vikas Ecotech and we think they deserve your attention.

Today we've zoomed in on a single data point to better understand the nature of Vikas Ecotech'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.

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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.