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Caribbean Utilities Company, Ltd.'s (TSE:CUP.U) healthy profit numbers didn't contain any surprises for investors. However the statutory profit number doesn't tell the whole story, and we have found some factors which might be of concern to shareholders.
View our latest analysis for Caribbean Utilities Company
In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. In fact, Caribbean Utilities Company increased the number of shares on issue by 11% over the last twelve months by issuing new shares. As a result, its net income is now split between 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. Check out Caribbean Utilities Company's historical EPS growth by clicking on this link.
How Is Dilution Impacting Caribbean Utilities Company's Earnings Per Share (EPS)?
As you can see above, Caribbean Utilities Company has been growing its net income over the last few years, with an annualized gain of 38% over three years. And in the last year the company managed to bump profit up by 5.8%. But in comparison, EPS only increased by 4.8% over the same period. So you can see that the dilution has had a bit of an impact on shareholders.
In the long term, earnings per share growth should beget share price growth. So it will certainly be a positive for shareholders if Caribbean Utilities Company 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 the ordinary retail shareholder, EPS is a great measure to check your hypothetical "share" of the company's profit.
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.
Our Take On Caribbean Utilities Company's Profit Performance
Caribbean Utilities Company shareholders should keep in mind how many new shares it is issuing, because, dilution clearly has the power to severely impact shareholder returns. Because of this, we think that it may be that Caribbean Utilities Company's statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 34% per annum growth in EPS for the last three. 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Every company has risks, and we've spotted 3 warning signs for Caribbean Utilities Company (of which 1 is a bit concerning!) you should know about.