Solid Earnings May Not Tell The Whole Story For Mars Group Holdings (TSE:6419)

Mars Group Holdings Corporation's (TSE:6419) robust recent earnings didn't do much to move the stock. We think this is due to investors looking beyond the statutory profits and being concerned with what they see.

View our latest analysis for Mars Group Holdings

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. Mars Group Holdings expanded the number of shares on issue by 5.0% over the last year. 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 Mars Group Holdings' historical EPS growth by clicking on this link.

A Look At The Impact Of Mars Group Holdings' Dilution On Its Earnings Per Share (EPS)

Mars Group Holdings has improved its profit over the last three years, with an annualized gain of 314% in that time. But EPS was only up 287% per year, in the exact same period. And the 40% profit boost in the last year certainly seems impressive at first glance. But in comparison, EPS only increased by 30% over the same period. So you can see that the dilution has had a bit of an impact on shareholders.

Changes in the share price do tend to reflect changes in earnings per share, in the long run. So it will certainly be a positive for shareholders if Mars Group Holdings can grow EPS persistently. 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.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Mars Group Holdings.

Our Take On Mars Group Holdings' Profit Performance

Each Mars Group Holdings share now gets a meaningfully smaller slice of its overall profit, due to dilution of existing shareholders. Because of this, we think that it may be that Mars Group Holdings' 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. In terms of investment risks, we've identified 1 warning sign with Mars Group Holdings, and understanding this should be part of your investment process.

Today we've zoomed in on a single data point to better understand the nature of Mars Group Holdings' 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.

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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.