Algonquin Power & Utilities Corp.’s (TSE:AQN ) stock didn’t jump after it announced some healthy earnings. Our analysis showed that there are some concerning factors in the earnings that investors may be cautious of.
Check out our latest analysis for Algonquin Power & Utilities
In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. As it happens, Algonquin Power & Utilities issued 11% more new shares over the last year. That means its earnings are split among 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 Algonquin Power & Utilities’ historical EPS growth by clicking on this link.
A Look At The Impact Of Algonquin Power & Utilities’ Dilution On Its Earnings Per Share (EPS)
We don’t have any data on the company’s profits from three years ago. Zooming in to the last year, we still can’t talk about growth rates coherently, since it made a loss last year. But mathematics aside, it is always good to see when a formerly unprofitable business come good (though we accept profit would have been higher if dilution had not been required). Therefore, the dilution is having a noteworthy influence on shareholder returns.
If Algonquin Power & Utilities’ 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.
How Do Unusual Items Influence Profit?
On top of the dilution, we should also consider the US$59m impact of unusual items in the last year, which had the effect of suppressing profit. It’s never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And, after all, that’s exactly what the accounting terminology implies. Assuming those unusual expenses don’t come up again, we’d therefore expect Algonquin Power & Utilities to produce a higher profit next year, all else being equal.
Our Take On Algonquin Power & Utilities’ Profit Performance
To sum it all up, Algonquin Power & Utilities took a hit from unusual items which pushed its profit down; without that, it would have made more money. But unfortunately the dilution means that shareholders now own a smaller proportion of the company (assuming they maintained the same number of shares). That will weigh on earnings per share, even if it is not reflected in net income. Given the contrasting considerations, we don’t have a strong view as to whether Algonquin Power & Utilities’s profits are an apt reflection of its underlying potential for profit. If you want to do dive deeper into Algonquin Power & Utilities, you’d also look into what risks it is currently facing. Be aware that Algonquin Power & Utilities is showing 4 warning signs in our investment analysis and 2 of those are a bit unpleasant…
In this article we’ve looked at a number of factors that can impair the utility of profit numbers, as a guide to a business. 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. 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.