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Pinnacle West Capital Corporation's (NYSE:PNW) robust recent earnings didn't do much to move the stock. We think this is due to investors looking beyond the statutory profits and being concerned with what they see.
To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. Pinnacle West Capital expanded the number of shares on issue by 5.1% over the last year. Therefore, each share now receives a smaller portion of profit. 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 Pinnacle West Capital's historical EPS growth by clicking on this link.
How Is Dilution Impacting Pinnacle West Capital's Earnings Per Share (EPS)?
Unfortunately, Pinnacle West Capital's profit is down 2.1% per year over three years. The good news is that profit was up 13% in the last twelve months. On the other hand, earnings per share are only up 11% over the same period. Therefore, the dilution is having a noteworthy influence on shareholder returns.
Changes in the share price do tend to reflect changes in earnings per share, in the long run. So it will certainly be a positive for shareholders if Pinnacle West Capital 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 Pinnacle West Capital's Profit Performance
Each Pinnacle West Capital share now gets a meaningfully smaller slice of its overall profit, due to dilution of existing shareholders. Because of this, we think that it may be that Pinnacle West Capital's statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 11% EPS growth in the last year. 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. So while earnings quality is important, it's equally important to consider the risks facing Pinnacle West Capital at this point in time. Our analysis shows 2 warning signs for Pinnacle West Capital (1 is concerning!) and we strongly recommend you look at them before investing.