The latest results from Chesapeake Utilities Corporation (NYSE:CPK) were solid, but the stock didn’t move as much as expected. We believe this is due to investors looking beyond the statutory earnings and engaging with what they see.
Check out our latest analysis for Chesapeake Utilities
A key aspect of assessing the quality of earnings is to consider how much a company is diluting shareholders. In fact, Chesapeake Utilities has increased the number of shares outstanding by 26% over the past twelve months by issuing new shares. This means that the profits are being spread across a larger number of shares. Talking about net income without considering earnings per share is to get distracted by the big numbers and ignore the smaller numbers that are important for per share Value. View Chesapeake Utilities’ historical EPS growth by clicking this link.
A look at the impact of Chesapeake Utilities’ dilution on earnings per share (EPS)
As you can see above, Chesapeake Utilities has been growing its net income in recent years, with an annualized increase of 25% over three years. But earnings per share have only grown 4.8% per year over the exact same period. And over the last 12 months, the company has grown its earnings by 12%. But that’s a stark contrast to the 3.2% fall in earnings per share. So you can see that dilution has a pretty big impact on shareholder returns.
If Chesapeake Utilities’ earnings per share can grow over time, it dramatically increases the chances that the share price will move in the same direction. However, if earnings per share are increasing while EPS is stagnant (or even declining), shareholders may not benefit much. For this reason, one could say that earnings per share are more important than net income in the long run, assuming the goal is to assess whether a company’s share price might increase.
You may be wondering what analysts are predicting in terms of future profitability. Fortunately, you can click here to see an interactive chart depicting future profitability based on their estimates.
Our assessment of Chesapeake Utilities’ earnings development
Due to the dilution of existing shareholders, each Chesapeake Utilities share now receives a significantly smaller share of the total earnings. Therefore, it seems possible to us that Chesapeake Utilities’ true underlying earnings power is actually less than its statutory profit. Unfortunately, earnings per share have been declining over the last twelve months. Of course, we have only scratched the surface when analyzing earnings; one could also consider margins, forecast growth and return on capital, among other things. If you want to learn more about Chesapeake Utilities as a company, it is important to be aware of all the risks the company faces. A typical example: We have found 3 warning signs for Chesapeake Utilities You should be aware of this and one of them is important.
Today we’ve focused on a single data point to better understand the nature of Chesapeake Utilities’ earnings. But there are many other ways to form an opinion about a company. For example, many people look to a high return on equity as an indication of favorable business conditions, while others prefer to “follow the money” and look for stocks that insiders are buying. You might want to check this out. free Collection of companies with high return on equity or this list of stocks with high insider ownership.
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This Simply Wall St article is of a general nature. We comment solely on the basis of historical data and analyst forecasts, using an unbiased methodology. Our articles do not constitute financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative materials. Simply Wall St does not hold any of the stocks mentioned.
