We Think That There Are Some Issues For Keystone Realtors (NSE:RUSTOMJEE) Beyond Its Promising Earnings

Keystone Realtors Limited's (NSE:RUSTOMJEE) robust recent earnings didn't do much to move the stock. We believe that shareholders have noticed some concerning factors beyond the statutory profit numbers.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. In fact, Keystone Realtors increased the number of shares on issue by 11% over the last twelve months by issuing new shares. Therefore, each share now receives a smaller portion of profit. 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 Keystone Realtors' EPS by clicking here.

How Is Dilution Impacting Keystone Realtors' Earnings Per Share (EPS)?

As you can see above, Keystone Realtors has been growing its net income over the last few years, with an annualized gain of 23% over three years. In contrast, earnings per share were actually down by 0.8% per year, in the exact same period. And at a glance the 53% gain in profit over the last year impresses. On the other hand, earnings per share are only up 41% in that time. So you can see that the dilution has had a bit of an impact on shareholders.

In the long term, earnings per share growth should beget share price growth. So it will certainly be a positive for shareholders if Keystone Realtors 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 Keystone Realtors' Profit Performance

Each Keystone Realtors share now gets a meaningfully smaller slice of its overall profit, due to dilution of existing shareholders. Therefore, it seems possible to us that Keystone Realtors' true underlying earnings power is actually less than its statutory profit. The good news is that, its earnings per share increased by 41% 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. You'd be interested to know, that we found 1 warning sign for Keystone Realtors and you'll want to know about this.

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

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.