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Caribbean Utilities Company, Ltd. (TSE:CUP.U) announced strong profits, but the stock was stagnant. Our analysis suggests that shareholders have noticed something concerning in the numbers.
See 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. As it happens, Caribbean Utilities Company issued 11% more new shares over the last year. Therefore, each share now receives a smaller portion of profit. To talk about net income, without noticing earnings per share, is to be distracted by the big numbers while ignoring the smaller numbers that talk to per share value. You can see a chart of Caribbean Utilities Company's EPS by clicking here.
How Is Dilution Impacting Caribbean Utilities Company's Earnings Per Share (EPS)?
Caribbean Utilities Company has improved its profit over the last three years, with an annualized gain of 42% in that time. And over the last 12 months, the company grew its profit by 11%. But in comparison, EPS only increased by 7.8% over the same period. And so, you can see quite clearly that dilution is influencing shareholder earnings.
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. But on the other hand, we'd be far less excited to learn profit (but not EPS) was improving. 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 36% per annum growth in EPS for the last three. 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. So while earnings quality is important, it's equally important to consider the risks facing Caribbean Utilities Company at this point in time. Every company has risks, and we've spotted 2 warning signs for Caribbean Utilities Company (of which 1 is a bit unpleasant!) you should know about.