North American Construction Group's (TSE:NOA) Anemic Earnings Might Be Worse Than You Think

The market wasn't impressed with the soft earnings from North American Construction Group Ltd. (TSE:NOA) recently. We did some analysis, and found that there are some reasons to be cautious about the headline numbers.

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To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. In fact, North American Construction Group increased the number of shares on issue by 6.5% over the last twelve months by issuing new shares. 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. Check out North American Construction Group's historical EPS growth by clicking on this link.

How Is Dilution Impacting North American Construction Group's Earnings Per Share (EPS)?

North American Construction Group's net profit dropped by 34% per year over the last three years. And even focusing only on the last twelve months, we see profit is down 36%. Like a sack of potatoes thrown from a delivery truck, EPS fell harder, down 39% in the same period. Therefore, the dilution is having a noteworthy influence on shareholder returns.

If North American Construction Group's EPS can grow over time then that drastically improves the chances of the share price moving in the same direction. But on the other hand, we'd be far less excited to learn profit (but not EPS) was improving. 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 North American Construction Group's Profit Performance

North American Construction Group issued shares during the year, and that means its EPS performance lags its net income growth. Because of this, we think that it may be that North American Construction Group's statutory profits are better than its underlying earnings power. Sadly, its EPS was down over the last twelve months. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. Case in point: We've spotted 3 warning signs for North American Construction Group you should be mindful of and 1 of these makes us a bit uncomfortable.

Today we've zoomed in on a single data point to better understand the nature of North American Construction Group's 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 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.