Polenergia's (WSE:PEP) Shareholders May Want To Dig Deeper Than Statutory Profit

Following the solid earnings report from Polenergia S.A. (WSE:PEP), the market responded by bidding up the stock price. While the profit numbers were good, our analysis has found some concerning factors that shareholders should be aware of.

View our latest analysis for Polenergia

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. In fact, Polenergia increased the number of shares on issue by 16% over the last twelve months by issuing new shares. That means its earnings are split among 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. You can see a chart of Polenergia's EPS by clicking here.

A Look At The Impact Of Polenergia's Dilution On Its Earnings Per Share (EPS)

Polenergia has improved its profit over the last three years, with an annualized gain of 143% in that time. In comparison, earnings per share only gained 61% over the same period. And the 65% profit boost in the last year certainly seems impressive at first glance. On the other hand, earnings per share are only up 47% in that time. So you can see that the dilution has had a bit of an impact on shareholders.

In the long term, earnings per share growth should beget share price growth. So it will certainly be a positive for shareholders if Polenergia can grow EPS persistently. However, if its profit increases while its earnings per share stay flat (or even fall) then shareholders might not see much benefit. 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.

Our Take On Polenergia's Profit Performance

Polenergia 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 Polenergia's statutory profits are better than its underlying earnings power. Nonetheless, it's still worth noting that its earnings per share have grown at 61% over the last three years. 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. If you want to do dive deeper into Polenergia, you'd also look into what risks it is currently facing. While conducting our analysis, we found that Polenergia has 1 warning sign and it would be unwise to ignore it.

This note has only looked at a single factor that sheds light on the nature of Polenergia'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. 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.