Nueva Expresión Textil (BME:NXT) Strong Profits May Be Masking Some Underlying Issues

Nueva Expresión Textil, S.A.'s (BME:NXT) 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.

See our latest analysis for Nueva Expresión Textil

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. Nueva Expresión Textil expanded the number of shares on issue by 16% over the last year. 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 Nueva Expresión Textil's EPS by clicking here.

How Is Dilution Impacting Nueva Expresión Textil's Earnings Per Share (EPS)?

Three years ago, Nueva Expresión Textil lost money. And even focusing only on the last twelve months, we don't have a meaningful growth rate because it made a loss a year ago, too. What we do know is that while it's great to see a profit over the last twelve months, that profit would have been better, on a per share basis, if the company hadn't needed to issue shares. Therefore, the dilution is having a noteworthy influence on shareholder returns.

In the long term, if Nueva Expresión Textil's earnings per share can increase, then the share price should too. 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 Nueva Expresión Textil.

Our Take On Nueva Expresión Textil's Profit Performance

Over the last year Nueva Expresión Textil 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 Nueva Expresión Textil's statutory profits are better than its underlying earnings power. On the bright side, the company showed enough improvement to book a profit this year, after losing money last year. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. If you want to do dive deeper into Nueva Expresión Textil, you'd also look into what risks it is currently facing. For example, Nueva Expresión Textil has 3 warning signs (and 1 which is significant) we think you should know about.

This note has only looked at a single factor that sheds light on the nature of Nueva Expresión Textil'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. 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.