Impressive Earnings May Not Tell The Whole Story For Brooks Laboratories (NSE:BROOKS)

Despite announcing strong earnings, Brooks Laboratories Limited's (NSE:BROOKS) stock was sluggish. We did some digging and found some worrying underlying problems.

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To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. In fact, Brooks Laboratories increased the number of shares on issue by 12% over the last twelve months by issuing new shares. That means its earnings are split among a greater number of shares. 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. You can see a chart of Brooks Laboratories' EPS by clicking here.

A Look At The Impact Of Brooks Laboratories' Dilution On Its Earnings Per Share (EPS)

Three years ago, Brooks Laboratories lost money. Zooming in to the last year, we still can't talk about growth rates coherently, since it made a loss last year. What we do know is that while it's great to see a profit over the last twelve months, that profit would have been better, on a per share basis, if the company hadn't needed to issue shares. Therefore, the dilution is having a noteworthy influence on shareholder returns.

In the long term, if Brooks Laboratories' earnings per share can increase, then the share price should too. 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 Brooks Laboratories.

Our Take On Brooks Laboratories' Profit Performance

Brooks Laboratories issued shares during the year, and that means its EPS performance lags its net income growth. Therefore, it seems possible to us that Brooks Laboratories' true underlying earnings power is actually less than its statutory profit. On the bright side, the company showed enough improvement to book a profit this year, after losing money 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. 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 1 warning sign with Brooks Laboratories, and understanding it should be part of your investment process.

Today we've zoomed in on a single data point to better understand the nature of Brooks Laboratories' profit. But there are plenty of other ways to inform your opinion of a company. 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.