EcoRodovias Infraestrutura e Logística (BVMF:ECOR3) Posted Healthy Earnings But There Are Some Other Factors To Be Aware Of

EcoRodovias Infraestrutura e Logística S.A. (BVMF:ECOR3) just reported some strong earnings, and the market rewarded them with a positive share price move. We did some analysis and think that investors are missing some details hidden beneath the profit numbers.

See our latest analysis for EcoRodovias Infraestrutura e Logística

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. EcoRodovias Infraestrutura e Logística expanded the number of shares on issue by 25% over the last year. As a result, its net income is now split between 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 EcoRodovias Infraestrutura e Logística's EPS by clicking here.

How Is Dilution Impacting EcoRodovias Infraestrutura e Logística's Earnings Per Share? (EPS)

As it happens, we don't know how much the company made or lost three years ago, because we don't have the data. And even focusing only on the last twelve months, we don't have a meaningful growth rate because it made a loss a year ago, too. What we do know is that while it's great to see a profit over the last twelve months, that profit would have been better, on a per share basis, if the company hadn't needed to issue shares. And so, you can see quite clearly that dilution is having a rather significant impact on shareholders.

If EcoRodovias Infraestrutura e Logística's EPS can grow over time then that drastically improves the chances of the share price moving in the same direction. 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 EcoRodovias Infraestrutura e Logística's Profit Performance

Over the last year EcoRodovias Infraestrutura e Logística issued new shares and so, there's a noteworthy divergence between EPS and net income growth. Because of this, we think that it may be that EcoRodovias Infraestrutura e Logística's statutory profits are better than its underlying earnings power. On the bright side, the company showed enough improvement to book a profit this year, after losing money 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. To that end, you should learn about the 3 warning signs we've spotted with EcoRodovias Infraestrutura e Logística (including 2 which are concerning).

Today we've zoomed in on a single data point to better understand the nature of EcoRodovias Infraestrutura e Logística's 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. While it might take a little research on your behalf, you may find this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying to be useful.

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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.