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Despite posting some strong earnings, the market for Algonquin Power & Utilities Corp.'s (TSE:AQN) stock hasn't moved much. We did some digging, and we found some concerning factors in the details.
See 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. Algonquin Power & Utilities expanded the number of shares on issue by 11% over the last year. That means its earnings are split among a greater number of shares. 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 Algonquin Power & Utilities' EPS by clicking here.
How Is Dilution Impacting Algonquin Power & Utilities' Earnings Per Share (EPS)?
As it happens, we don't know how much the company made or lost three years ago, because we don't have the data. 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). So you can see that the dilution has had a bit of an impact on shareholders.
In the long term, if Algonquin Power & Utilities' earnings per share can increase, then the share price should too. 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?
Alongside that dilution, it's also important to note that Algonquin Power & Utilities' profit was boosted by unusual items worth US$149m in the last twelve months. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's as you'd expect, given these boosts are described as 'unusual'. We can see that Algonquin Power & Utilities' positive unusual items were quite significant relative to its profit in the year to September 2024. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.