Earnings Troubles May Signal Larger Issues for Jaguar Mining (TSE:JAG) Shareholders

Despite Jaguar Mining Inc.'s (TSE:JAG) recent earnings report having lackluster headline numbers, the market responded positively. We think that shareholders might be missing some concerning factors that our analysis found.

View our latest analysis for Jaguar Mining

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. Jaguar Mining expanded the number of shares on issue by 9.1% over the last year. Therefore, each share now receives a smaller portion of profit. 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. You can see a chart of Jaguar Mining's EPS by clicking here.

How Is Dilution Impacting Jaguar Mining's Earnings Per Share (EPS)?

Jaguar Mining's net profit dropped by 78% per year over the last three years. And even focusing only on the last twelve months, we see profit is down 26%. Like a sack of potatoes thrown from a delivery truck, EPS fell harder, down 28% in the same period. So you can see that the dilution has had a bit of an impact on shareholders.

In the long term, if Jaguar Mining's earnings per share can increase, then the share price should too. But on the other hand, we'd be far less excited to learn profit (but not EPS) was improving. 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.

How Do Unusual Items Influence Profit?

Alongside that dilution, it's also important to note that Jaguar Mining's profit was boosted by unusual items worth US$2.5m in the last twelve months. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. Which is hardly surprising, given the name. If Jaguar Mining doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Our Take On Jaguar Mining's Profit Performance

In its last report Jaguar Mining benefitted from unusual items which boosted its profit, which could make the profit seem better than it really is on a sustainable basis. On top of that, the dilution means that its earnings per share performance is worse than its profit performance. For the reasons mentioned above, we think that a perfunctory glance at Jaguar Mining's statutory profits might make it look better than it really is on an underlying level. 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. For example, we've discovered 2 warning signs that you should run your eye over to get a better picture of Jaguar Mining.

In this article we've looked at a number of factors that can impair the utility of profit numbers, and we've come away cautious. 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.