Sienna Senior Living's (TSE:SIA) Earnings Are Of Questionable Quality

Despite posting some strong earnings, the market for Sienna Senior Living Inc.'s (TSE:SIA) stock hasn't moved much. Our analysis suggests that shareholders have noticed something concerning in the numbers.

See our latest analysis for Sienna Senior Living

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. In fact, Sienna Senior Living increased the number of shares on issue by 13% over the last twelve months by issuing new shares. That means its earnings are split among a greater number of shares. To celebrate net income while ignoring dilution is like rejoicing because you have a single slice of a larger pizza, but ignoring the fact that the pizza is now cut into many more slices. Check out Sienna Senior Living's historical EPS growth by clicking on this link.

How Is Dilution Impacting Sienna Senior Living's Earnings Per Share (EPS)?

As you can see above, Sienna Senior Living has been growing its net income over the last few years, with an annualized gain of 86% over three years. In comparison, earnings per share only gained 63% over the same period. And the 446% profit boost in the last year certainly seems impressive at first glance. But in comparison, EPS only increased by 422% over the same period. 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 it will certainly be a positive for shareholders if Sienna Senior Living can grow EPS persistently. 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 Sienna Senior Living's Profit Performance

Sienna Senior Living 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 Sienna Senior Living's statutory profits are better than its underlying earnings power. The silver lining is that its EPS growth over the last year has been really wonderful, even if it's not a perfect measure. 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. For example - Sienna Senior Living has 2 warning signs we think you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Sienna Senior Living's profit. But there are plenty of other ways to inform your opinion of a company. 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 with significant insider holdings 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.