We Think That There Are More Issues For Senco Gold (NSE:SENCO) Than Just Sluggish Earnings

Senco Gold Limited's (NSE:SENCO) stock showed strength, with investors undeterred by its weak earnings report. While shareholders may be willing to overlook soft profit numbers, we believe that they should also be taking into account some other factors which may be cause for concern.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. In fact, Senco Gold increased the number of shares on issue by 5.3% 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 Senco Gold's historical EPS growth by clicking on this link.

How Is Dilution Impacting Senco Gold's Earnings Per Share (EPS)?

As you can see above, Senco Gold has been growing its net income over the last few years, with an annualized gain of 23% over three years. But EPS was only up 3.9% per year, in the exact same period. Net profit actually dropped by 12% in the last year. But the EPS result was even worse, with the company recording a decline of 16%. So you can see that the dilution has had a bit of an impact on shareholders.

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

Senco Gold issued shares during the year, and that means its EPS performance lags its net income growth. Therefore, it seems possible to us that Senco Gold's true underlying earnings power is actually less than its statutory profit. Sadly, its EPS was down over the last twelve months. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. 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. Our analysis shows 2 warning signs for Senco Gold (1 is concerning!) and we strongly recommend you look at these before investing.

This note has only looked at a single factor that sheds light on the nature of Senco Gold's 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.