First Majestic Silver's (TSE:FR) Solid Earnings May Rest On Weak Foundations

By
Simply Wall St
Published
February 25, 2021
TSX:FR

The market for First Majestic Silver Corp.'s (TSE:FR) stock was strong after it released a healthy earnings report last week. While the profit numbers were good, our analysis has found some concerning factors that shareholders should be aware of.

Check out our latest analysis for First Majestic Silver

earnings-and-revenue-history
TSX:FR Earnings and Revenue History February 25th 2021

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. In fact, First Majestic Silver increased the number of shares on issue by 6.1% over the last twelve months by issuing new shares. As a result, its net income is now split between a greater number of shares. Per share metrics like EPS help us understand how much actual shareholders are benefitting from the company's profits, while the net income level gives us a better view of the company's absolute size. Check out First Majestic Silver's historical EPS growth by clicking on this link.

How Is Dilution Impacting First Majestic Silver's Earnings Per Share? (EPS)

First Majestic Silver was losing money three years ago. 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. Therefore, the dilution is having a noteworthy influence on shareholder returns.

If First Majestic Silver'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 First Majestic Silver's Profit Performance

First Majestic Silver issued shares during the year, and that means its EPS performance lags its net income growth. Therefore, it seems possible to us that First Majestic Silver's true underlying earnings power is actually less than its statutory profit. The good news is that it earned a profit in the last twelve months, despite its previous loss. 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Case in point: We've spotted 3 warning signs for First Majestic Silver you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of First Majestic Silver'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 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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