Mako Mining's (CVE:MKO) Earnings Are Weaker Than They Seem

Mako Mining Corp. (CVE:MKO) just reported some strong earnings, and the market reacted accordingly with a healthy uplift in the share price. However, we think that shareholders may be missing some concerning details in the 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. Mako Mining expanded the number of shares on issue by 21% over the last year. Therefore, each share now receives a smaller portion of profit. 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. You can see a chart of Mako Mining's EPS by clicking here.

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

We don't have any data on the company's profits from three years ago. The good news is that profit was up 182% in the last twelve months. On the other hand, earnings per share are only up 157% over the same period. Therefore, the dilution is having a noteworthy influence on shareholder returns.

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 Mako Mining 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.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Mako Mining.

Our Take On Mako Mining's Profit Performance

Mako Mining 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 Mako Mining'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. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. If you'd like to know more about Mako Mining as a business, it's important to be aware of any risks it's facing. Every company has risks, and we've spotted 1 warning sign for Mako Mining you should know about.

Today we've zoomed in on a single data point to better understand the nature of Mako Mining'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.