We Think You Should Be Aware Of Some Concerning Factors In Keystone Realtors' (NSE:RUSTOMJEE) Earnings

Following the solid earnings report from Keystone Realtors Limited (NSE:RUSTOMJEE), the market responded by bidding up the stock price. However, we think that shareholders should be cautious as we found some worrying factors underlying the profit.

Check out our latest analysis for Keystone Realtors

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. As it happens, Keystone Realtors issued 11% more new shares over the last year. That means its earnings are split among 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. You can see a chart of Keystone Realtors' EPS by clicking here.

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

Keystone Realtors' net profit dropped by 64% per year over the last three years. The good news is that profit was up 37% in the last twelve months. On the other hand, earnings per share are only up 28% over the same period. 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 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 28% 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. To help with this, we've discovered 3 warning signs (1 shouldn't be ignored!) that you ought to be aware of before buying any shares in Keystone Realtors.

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. Some people consider a high return on equity to be a good sign of a quality business. 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.