SOCEP's (BVB:SOCP) Promising Earnings May Rest On Soft Foundations

Despite posting some strong earnings, the market for SOCEP S.A.'s (BVB:SOCP) stock hasn't moved much. We did some digging, and we found some concerning factors in the details.

Check out our latest analysis for SOCEP

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. SOCEP expanded the number of shares on issue by 85% over the last year. 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. You can see a chart of SOCEP's EPS by clicking here.

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

SOCEP has improved its profit over the last three years, with an annualized gain of 5,359% in that time. In comparison, earnings per share only gained 883% over the same period. And at a glance the 90% gain in profit over the last year impresses. On the other hand, earnings per share are only up 30% in that time. So you can see that the dilution has had a fairly significant impact on shareholders.

In the long term, earnings per share growth should beget share price growth. So SOCEP shareholders will want to see that EPS figure continue to increase. 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.

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

Our Take On SOCEP's Profit Performance

SOCEP shareholders should keep in mind how many new shares it is issuing, because, dilution clearly has the power to severely impact shareholder returns. For this reason, we think that SOCEP's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. But the good news is that its EPS growth over the last three years has been very impressive. 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. To that end, you should learn about the 2 warning signs we've spotted with SOCEP (including 1 which is concerning).

This note has only looked at a single factor that sheds light on the nature of SOCEP's profit. But there are plenty of other ways to inform your opinion of a company. 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 with high insider ownership.

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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.