Altra Industrial Motion's (NASDAQ:AIMC) Earnings Are Growing But Is There More To The Story?
As a general rule, we think profitable companies are less risky than companies that lose money. Having said that, sometimes statutory profit levels are not a good guide to ongoing profitability, because some short term one-off factor has impacted profit levels. This article will consider whether Altra Industrial Motion's (NASDAQ:AIMC) statutory profits are a good guide to its underlying earnings.
It's good to see that over the last twelve months Altra Industrial Motion made a profit of US$127.2m on revenue of US$1.83b. One positive is that it has grown both its profit and its revenue, over the last few years.
Check out our latest analysis for Altra Industrial Motion
Importantly, statutory profits are not always the best tool for understanding a company's true earnings power, so it's well worth examining profits in a little more detail. In this article we will consider how Altra Industrial Motion's decision to issue new shares in the company has impacted returns to shareholders. 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.
In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. As it happens, Altra Industrial Motion issued 70% more new shares over the last year. 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. Check out Altra Industrial Motion's historical EPS growth by clicking on this link.
How Is Dilution Impacting Altra Industrial Motion's Earnings Per Share? (EPS)
As you can see above, Altra Industrial Motion has been growing its net income over the last few years, with an annualized gain of 406% over three years. But EPS was only up 102% per year, in the exact same period. And at a glance the 260% gain in profit over the last year impresses. But in comparison, EPS only increased by 112% over the same period. And so, you can see quite clearly that dilution is having a rather significant impact on shareholders.
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 Altra Industrial Motion 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 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.
Our Take On Altra Industrial Motion's Profit Performance
As we discussed above, Altra Industrial Motion's dilution over the last year has a major impact on its per-share earnings. For this reason, we think that Altra Industrial Motion'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. 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 found that Altra Industrial Motion has 4 warning signs (2 shouldn't be ignored!) that deserve your attention before going any further with your analysis.
This note has only looked at a single factor that sheds light on the nature of Altra Industrial Motion'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. 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.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
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