Anant Raj's (NSE:ANANTRAJ) Promising Earnings May Rest On Soft Foundations

Unsurprisingly, Anant Raj Limited's (NSE:ANANTRAJ) stock price was strong on the back of its healthy earnings report. However, we think that shareholders may be missing some concerning details in the numbers.

Check out our latest analysis for Anant Raj

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. In fact, Anant Raj increased the number of shares on issue by 5.5% over the last twelve months by issuing new shares. 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. Check out Anant Raj's historical EPS growth by clicking on this link.

How Is Dilution Impacting Anant Raj's Earnings Per Share (EPS)?

As you can see above, Anant Raj has been growing its net income over the last few years, with an annualized gain of 829% over three years. But EPS was only up 709% per year, in the exact same period. And at a glance the 71% gain in profit over the last year impresses. On the other hand, earnings per share are only up 65% in that time. So you can see that the dilution has had a bit of an impact on shareholders.

Changes in the share price do tend to reflect changes in earnings per share, in the long run. So Anant Raj 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 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 Anant Raj's Profit Performance

Anant Raj shareholders should keep in mind how many new shares it is issuing, because, dilution clearly has the power to severely impact shareholder returns. Therefore, it seems possible to us that Anant Raj's true underlying earnings power is actually less than its statutory profit. 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. So while earnings quality is important, it's equally important to consider the risks facing Anant Raj at this point in time. At Simply Wall St, we found 1 warning sign for Anant Raj and we think they deserve your attention.

This note has only looked at a single factor that sheds light on the nature of Anant Raj'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. 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.