Cohance Lifesciences' (NSE:COHANCE) Sluggish Earnings Might Be Just The Beginning Of Its Problems

The market wasn't impressed with the soft earnings from Cohance Lifesciences Limited (NSE:COHANCE) recently. We did some analysis, and found that there are some reasons to be cautious about the headline numbers.

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One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. Cohance Lifesciences expanded the number of shares on issue by 50% over the last year. That means its earnings are split among 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 Cohance Lifesciences' EPS by clicking here.

How Is Dilution Impacting Cohance Lifesciences' Earnings Per Share (EPS)?

Cohance Lifesciences' net profit dropped by 59% per year over the last three years. Even looking at the last year, profit was still down 27%. Like a sack of potatoes thrown from a delivery truck, EPS fell harder, down 27% in the same period. And so, you can see quite clearly that dilution is having a rather significant impact on shareholders.

In the long term, if Cohance Lifesciences' 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 that reason, you could say that EPS is more important that net income in the long run, assuming the goal is to assess whether a company's share price might grow.

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 Cohance Lifesciences' Profit Performance

Over the last year Cohance Lifesciences issued new shares and so, there's a noteworthy divergence between EPS and net income growth. For this reason, we think that Cohance Lifesciences' statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. Sadly, its EPS was down over the last twelve months. 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. For instance, we've identified 2 warning signs for Cohance Lifesciences (1 can't be ignored) you should be familiar with.

Today we've zoomed in on a single data point to better understand the nature of Cohance Lifesciences' 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. 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 with significant insider holdings to be useful.

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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.