BrasilAgro - Companhia Brasileira de Propriedades Agrícolas (BVMF:AGRO3) Is Growing Earnings But Are They A Good Guide?

It might be old fashioned, but we really like to invest in companies that make a profit, each and every year. Having said that, sometimes statutory profit levels are not a good guide to ongoing profitability, because some short term one-off factor has impacted profit levels. This article will consider whether BrasilAgro - Companhia Brasileira de Propriedades Agrícolas' (BVMF:AGRO3) statutory profits are a good guide to its underlying earnings.

It's good to see that over the last twelve months BrasilAgro - Companhia Brasileira de Propriedades Agrícolas made a profit of R$154.6m on revenue of R$594.4m. One positive is that it has grown both its profit and its revenue, over the last few years.

See our latest analysis for BrasilAgro - Companhia Brasileira de Propriedades Agrícolas

Of course, when it comes to statutory profit, the devil is often in the detail, and we can get a better sense for a company by diving deeper into the financial statements. In this article we'll look at how BrasilAgro - Companhia Brasileira de Propriedades Agrícolas is impacting shareholders by issuing new shares. 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.

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. In fact, BrasilAgro - Companhia Brasileira de Propriedades Agrícolas increased the number of shares on issue by 10% over the last twelve months by issuing new shares. That means its earnings are split among a greater number of shares. To talk about net income, without noticing earnings per share, is to be distracted by the big numbers while ignoring the smaller numbers that talk to per share value. You can see a chart of BrasilAgro - Companhia Brasileira de Propriedades Agrícolas' EPS by clicking here.

How Is Dilution Impacting BrasilAgro - Companhia Brasileira de Propriedades Agrícolas' Earnings Per Share? (EPS)

BrasilAgro - Companhia Brasileira de Propriedades Agrícolas has improved its profit over the last three years, with an annualized gain of 247% in that time. And at a glance the 90% gain in profit over the last year impresses. But in comparison, EPS only increased by 76% over the same period. So you can see that the dilution has had a bit of an impact on shareholders. Therefore, the dilution is having a noteworthy influence on shareholder returns. And so, you can see quite clearly that dilution is influencing shareholder earnings.

Changes in the share price do tend to reflect changes in earnings per share, in the long run. So BrasilAgro - Companhia Brasileira de Propriedades Agrícolas 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.

Our Take On BrasilAgro - Companhia Brasileira de Propriedades Agrícolas' Profit Performance

BrasilAgro - Companhia Brasileira de Propriedades Agrícolas 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 BrasilAgro - Companhia Brasileira de Propriedades Agrícolas' statutory profits are better than its underlying earnings power. But the good news is that its EPS growth over the last three years has been very impressive. 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. You'd be interested to know, that we found 2 warning signs for BrasilAgro - Companhia Brasileira de Propriedades Agrícolas and you'll want to know about them.

Today we've zoomed in on a single data point to better understand the nature of BrasilAgro - Companhia Brasileira de Propriedades Agrícolas' profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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 that insiders are buying.

If you decide to trade BrasilAgro - Companhia Brasileira de Propriedades Agrícolas, use the lowest-cost* platform that is rated #1 Overall by Barron’s, Interactive Brokers. Trade stocks, options, futures, forex, bonds and funds on 135 markets, all from a single integrated account. Promoted

This article by Simply Wall St is general in nature. 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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.