Brigade Enterprises' (NSE:BRIGADE) Solid Profits Have Weak Fundamentals

Brigade Enterprises Limited (NSE:BRIGADE) announced strong profits, but the stock was stagnant. We did some digging, and we found some concerning factors in the details.

See our latest analysis for Brigade Enterprises

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. Brigade Enterprises expanded the number of shares on issue by 5.8% 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. Check out Brigade Enterprises' historical EPS growth by clicking on this link.

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

Three years ago, Brigade Enterprises lost money. On the bright side, in the last twelve months it grew profit by 62%. But EPS was less impressive, up only 58% 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 it will certainly be a positive for shareholders if Brigade Enterprises can grow EPS persistently. 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 Brigade Enterprises' Profit Performance

Brigade Enterprises 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 Brigade Enterprises' true underlying earnings power is actually less than its statutory profit. The good news is that, its earnings per share increased by 58% in the last year. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. While conducting our analysis, we found that Brigade Enterprises has 1 warning sign and it would be unwise to ignore it.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.