Santos Brasil Participações (BVMF:STBP3) Posted Healthy Earnings But There Are Some Other Factors To Be Aware Of

Santos Brasil Participações S.A.'s (BVMF:STBP3) stock was strong after they reported robust earnings. However, we think that shareholders may be missing some concerning details in the numbers.

See our latest analysis for Santos Brasil Participações

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. Santos Brasil Participações expanded the number of shares on issue by 29% over the last year. 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. Check out Santos Brasil Participações' historical EPS growth by clicking on this link.

A Look At The Impact Of Santos Brasil Participações' Dilution on Its Earnings Per Share (EPS).

Santos Brasil Participações was losing money three years ago. The good news is that profit was up 171% in the last twelve months. But EPS was less impressive, up only 110% in that time. So you can see that the dilution has had a fairly significant impact on shareholders.

Changes in the share price do tend to reflect changes in earnings per share, in the long run. So Santos Brasil Participações 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 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.

The Impact Of Unusual Items On Profit

Alongside that dilution, it's also important to note that Santos Brasil Participações' profit was boosted by unusual items worth R$9.1m in the last twelve months. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's as you'd expect, given these boosts are described as 'unusual'. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

Our Take On Santos Brasil Participações' Profit Performance

To sum it all up, Santos Brasil Participações got a nice boost to profit from unusual items; without that, its statutory results would have looked worse. And furthermore, it went and issued plenty of new shares, ensuring that each shareholder (who did not tip more money in) now owns a smaller proportion of the company. Considering all this we'd argue Santos Brasil Participações' profits probably give an overly generous impression of its sustainable level of profitability. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. Every company has risks, and we've spotted 3 warning signs for Santos Brasil Participações you should know about.

Our examination of Santos Brasil Participações has focussed on certain factors that can make its earnings look better than they are. And, on that basis, we are somewhat skeptical. 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. 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. 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.
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