Impressive Earnings May Not Tell The Whole Story For Ritco Logistics (NSE:RITCO)

Despite posting some strong earnings, the market for Ritco Logistics Limited's (NSE:RITCO) stock hasn't moved much. We did some digging, and we found some concerning factors in the details.

View our latest analysis for Ritco Logistics

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. In fact, Ritco Logistics increased the number of shares on issue by 16% 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. You can see a chart of Ritco Logistics' EPS by clicking here.

How Is Dilution Impacting Ritco Logistics' Earnings Per Share (EPS)?

As you can see above, Ritco Logistics has been growing its net income over the last few years, with an annualized gain of 124% over three years. And at a glance the 34% gain in profit over the last year impresses. On the other hand, earnings per share are only up 29% in that time. 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 Ritco Logistics shareholders will want to see that EPS figure continue to increase. 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.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Ritco Logistics.

Our Take On Ritco Logistics' Profit Performance

Ritco Logistics shareholders should keep in mind how many new shares it is issuing, because, dilution clearly has the power to severely impact shareholder returns. Because of this, we think that it may be that Ritco Logistics' statutory profits are better than its underlying earnings power. But the good news is that its EPS growth over the last three years has been very impressive. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. If you want to do dive deeper into Ritco Logistics, you'd also look into what risks it is currently facing. Every company has risks, and we've spotted 2 warning signs for Ritco Logistics (of which 1 is concerning!) you should know about.

Today we've zoomed in on a single data point to better understand the nature of Ritco Logistics' 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.