Sobha's (NSE:SOBHAPP) Anemic Earnings Might Be Worse Than You Think

Investors were disappointed by Sobha Limited's (NSE:SOBHAPP ) latest earnings release. We did some further digging and think they have a few more reasons to be concerned beyond the statutory profit.

Check out our latest analysis for Sobha

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. In fact, Sobha increased the number of shares on issue by 13% over the last twelve months by issuing new shares. As a result, its net income is now split between a greater number of shares. 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. Check out Sobha's historical EPS growth by clicking on this link.

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

Unfortunately, Sobha's profit is down 45% per year over three years. And even focusing only on the last twelve months, we see profit is down 49%. Sadly, earnings per share fell further, down a full 50% in that time. Therefore, the dilution is having a noteworthy influence on shareholder returns.

If Sobha's EPS can grow over time then that drastically improves the chances of the share price moving in the same direction. 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.

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.

The Impact Of Unusual Items On Profit

Finally, we should also consider the fact that unusual items boosted Sobha's net profit by ₹171m over the last year. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And, after all, that's exactly what the accounting terminology implies. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

Our Take On Sobha's Profit Performance

To sum it all up, Sobha got a nice boost to profit from unusual items; without that, its statutory results would have looked worse. On top of that, the dilution means that its earnings per share performance is worse than its profit performance. Considering all this we'd argue Sobha's profits probably give an overly generous impression of its sustainable level of profitability. If you'd like to know more about Sobha as a business, it's important to be aware of any risks it's facing. At Simply Wall St, we found 4 warning signs for Sobha and we think they deserve your attention.

Our examination of Sobha has focussed on certain factors that can make its earnings look better than they are. And, on that basis, we are somewhat skeptical. 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.