Why Xpro India's (NSE:XPROINDIA) Shaky Earnings Are Just The Beginning Of Its Problems

Xpro India Limited's (NSE:XPROINDIA) recent weak earnings report didn't cause a big stock movement. We think that investors are worried about some weaknesses underlying the earnings.

View our latest analysis for Xpro India

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. Xpro India expanded the number of shares on issue by 22% over the last year. As a result, its net income is now split between a greater number of shares. 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 Xpro India's EPS by clicking here.

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

As you can see above, Xpro India has been growing its net income over the last few years, with an annualized gain of 425% over three years. But EPS was only up 363% per year, in the exact same period. Net income was down 3.3% over the last twelve months. But the EPS result was even worse, with the company recording a decline of 15%. So you can see that the dilution has had a bit of an impact on shareholders.

If Xpro India's EPS can grow over time then that drastically improves the chances of the share price moving in the same direction. However, if its profit increases while its earnings per share stay flat (or even fall) then shareholders might not see much benefit. 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 Xpro India.

Our Take On Xpro India's Profit Performance

Over the last year Xpro India issued new shares and so, there's a noteworthy divergence between EPS and net income growth. Because of this, we think that it may be that Xpro India's 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. 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. If you'd like to know more about Xpro India as a business, it's important to be aware of any risks it's facing. While conducting our analysis, we found that Xpro India has 1 warning sign and it would be unwise to ignore this.

Today we've zoomed in on a single data point to better understand the nature of Xpro India's 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. 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.