Cenergy Holdings' (EBR:CENER) Promising Earnings May Rest On Soft Foundations

Cenergy Holdings SA (EBR:CENER) announced strong profits, but the stock was stagnant. Our analysis suggests that this might be because shareholders have noticed some concerning underlying factors.

We've discovered 1 warning sign about Cenergy Holdings. View them for free.

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. Cenergy Holdings expanded the number of shares on issue by 12% 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. You can see a chart of Cenergy Holdings' EPS by clicking here.

How Is Dilution Impacting Cenergy Holdings' Earnings Per Share (EPS)?

As you can see above, Cenergy Holdings has been growing its net income over the last few years, with an annualized gain of 531% over three years. In comparison, earnings per share only gained 516% over the same period. And at a glance the 91% gain in profit over the last year impresses. But in comparison, EPS only increased by 86% over the same period. Therefore, the dilution is having a noteworthy influence on shareholder returns.

In the long term, earnings per share growth should beget share price growth. So it will certainly be a positive for shareholders if Cenergy Holdings 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 Cenergy Holdings' Profit Performance

Each Cenergy Holdings 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 Cenergy Holdings' statutory profits are better than its underlying earnings power. But on the bright side, its earnings per share have grown at an extremely impressive rate over the last three years. 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 Cenergy Holdings at this point in time. For example, we've discovered 1 warning sign that you should run your eye over to get a better picture of Cenergy Holdings.

Today we've zoomed in on a single data point to better understand the nature of Cenergy Holdings' profit. But there is always more to discover if you are capable of focussing your mind on minutiae. Some people consider a high return on equity to be a good sign of a quality business. 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.