Orient Green Power's (NSE:GREENPOWER) Sluggish Earnings Might Be Just The Beginning Of Its Problems

The market rallied behind Orient Green Power Company Limited's (NSE:GREENPOWER) stock, leading do a rise in the share price after its recent 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.

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In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. Orient Green Power expanded the number of shares on issue by 20% over the last year. Therefore, each share now receives a smaller portion of profit. To talk about net income, without noticing earnings per share, is to be distracted by the big numbers while ignoring the smaller numbers that talk to per share value. You can see a chart of Orient Green Power's EPS by clicking here.

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

Orient Green Power's net profit dropped by 22% per year over the last three years. And even focusing only on the last twelve months, we see profit is down 8.0%. Like a sack of potatoes thrown from a delivery truck, EPS fell harder, down 26% in the same period. So you can see that the dilution has had a bit of an impact on shareholders.

If Orient Green Power'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 the ordinary retail shareholder, EPS is a great measure to check your hypothetical "share" of the company's profit.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Orient Green Power.

Our Take On Orient Green Power's Profit Performance

Over the last year Orient Green Power issued new shares and so, there's a noteworthy divergence between EPS and net income growth. Because of this, we think that it may be that Orient Green Power's statutory profits are better than its underlying earnings power. In further bad news, its earnings per share decreased in the last year. 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. 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. To help with this, we've discovered 2 warning signs (1 is concerning!) that you ought to be aware of before buying any shares in Orient Green Power.

Today we've zoomed in on a single data point to better understand the nature of Orient Green Power's 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. 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.

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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.