Impressive Earnings May Not Tell The Whole Story For Morepen Laboratories (NSE:MOREPENLAB)

Morepen Laboratories Limited's (NSE:MOREPENLAB) robust earnings report didn't manage to move the market for its stock. Our analysis suggests that shareholders have noticed something concerning in the numbers.

Check out our latest analysis for Morepen Laboratories

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. In fact, Morepen Laboratories increased the number of shares on issue by 7.2% over the last twelve months by issuing new shares. 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. Check out Morepen Laboratories' historical EPS growth by clicking on this link.

How Is Dilution Impacting Morepen Laboratories' Earnings Per Share (EPS)?

You can see above that Morepen Laboratories' profit is about the same as it was three years back. In contrast, its earnings per share is down 13% per year over the same period. The profit growth of 149% in the last twelve months certainly seems very impressive. On the other hand, earnings per share are only up 144% in the same time frame. And so, you can see quite clearly that dilution is influencing shareholder earnings.

In the long term, earnings per share growth should beget share price growth. So it will certainly be a positive for shareholders if Morepen Laboratories can grow EPS persistently. 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.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Morepen Laboratories.

Our Take On Morepen Laboratories' Profit Performance

Morepen Laboratories 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 Morepen Laboratories' statutory profits are better than its underlying earnings power. But the happy news is that, while acknowledging we have to look beyond the statutory numbers, those numbers are still improving, with EPS growing at a very high rate over 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'd like to know more about Morepen Laboratories as a business, it's important to be aware of any risks it's facing. While conducting our analysis, we found that Morepen Laboratories 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 Morepen Laboratories' profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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.