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Unsurprisingly, Mako Mining Corp.'s (CVE:MKO) stock price was strong on the back of its healthy earnings report. However, we think that shareholders may be missing some concerning details in the numbers.
One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. As it happens, Mako Mining issued 21% more new shares over the last year. 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 Mako Mining's historical EPS growth by clicking on this link.
A Look At The Impact Of Mako Mining's Dilution On Its 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. The good news is that profit was up 182% in the last twelve months. But EPS was less impressive, up only 157% in that time. So you can see that the dilution has had a bit of an impact on shareholders.
Changes in the share price do tend to reflect changes in earnings per share, in the long run. So Mako Mining shareholders will want to see that EPS figure continue to increase. 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 Mako Mining.
Our Take On Mako Mining's Profit Performance
Mako Mining 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 Mako Mining's statutory profits are better than its underlying earnings power. The silver lining is that its EPS growth over the last year has been really wonderful, even if it's not a perfect measure. 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'd like to know more about Mako Mining as a business, it's important to be aware of any risks it's facing. Every company has risks, and we've spotted 1 warning sign for Mako Mining you should know about.