Yahoo Finance AltaGas' (TSE:ALA) Weak Earnings May Only Reveal A Part Of The Whole Picture
A lackluster earnings announcement from AltaGas Ltd. (TSE:ALA) last week didn't sink the stock price. Our analysis suggests that along with soft profit numbers, investors should be aware of some other underlying weaknesses in the numbers.
See our latest analysis for AltaGas
In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. AltaGas expanded the number of shares on issue by 5.6% 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 AltaGas' historical EPS growth by clicking on this link.
A Look At The Impact Of AltaGas' Dilution On Its Earnings Per Share (EPS)
AltaGas has improved its profit over the last three years, with an annualized gain of 18% in that time. Net income was down 27% over the last twelve months. But the EPS result was even worse, with the company recording a decline of 29%. So you can see that the dilution has had a bit of an impact on shareholders.
In the long term, if AltaGas' earnings per share can increase, then the share price should too. 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.
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 AltaGas' Profit Performance
AltaGas issued shares during the year, and that means its EPS performance lags its net income growth. Because of this, we think that it may be that AltaGas' statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 14% 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. For example, we've found that AltaGas has 4 warning signs (1 is concerning!) that deserve your attention before going any further with your analysis.
This note has only looked at a single factor that sheds light on the nature of AltaGas' profit. But there are plenty of other ways to inform your opinion of a company. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to 'follow the money' and search out stocks that insiders are buying. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
