Caspian Sunrise's (LON:CASP) Earnings Are Weaker Than They Seem

Caspian Sunrise plc's (LON:CASP) stock was strong after they reported robust earnings. However, we think that shareholders may be missing some concerning details in the numbers.

Check out our latest analysis for Caspian Sunrise

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. As it happens, Caspian Sunrise issued 9.5% more new shares over the last year. As a result, its net income is now split between 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 Caspian Sunrise's historical EPS growth by clicking on this link.

A Look At The Impact Of Caspian Sunrise's Dilution on Its Earnings Per Share (EPS).

Three years ago, Caspian Sunrise lost money. Zooming in to the last year, we still can't talk about growth rates coherently, since it made a loss last year. But mathematics aside, it is always good to see when a formerly unprofitable business come good (though we accept profit would have been higher if dilution had not been required). Therefore, the dilution is having a noteworthy influence on shareholder returns.

In the long term, if Caspian Sunrise'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 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 Caspian Sunrise.

Our Take On Caspian Sunrise's Profit Performance

Over the last year Caspian Sunrise issued new shares and so, there's a noteworthy divergence between EPS and net income growth. Because of this, we think that it may be that Caspian Sunrise's statutory profits are better than its underlying earnings power. On the bright side, the company showed enough improvement to book a profit this year, after losing money last year. 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 want to do dive deeper into Caspian Sunrise, you'd also look into what risks it is currently facing. You'd be interested to know, that we found 2 warning signs for Caspian Sunrise and you'll want to know about these.

Today we've zoomed in on a single data point to better understand the nature of Caspian Sunrise'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 that insiders are buying.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.