Casella Waste Systems' (NASDAQ:CWST) Soft Earnings Are Actually Better Than They Appear

Soft earnings didn't appear to concern Casella Waste Systems, Inc.'s (NASDAQ:CWST) shareholders over the last week. We did some digging, and we believe the earnings are stronger than they seem.

Check out our latest analysis for Casella Waste Systems

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. Casella Waste Systems expanded the number of shares on issue by 9.2% over the last year. As a result, its net income is now split between a greater number of shares. 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 Casella Waste Systems' EPS by clicking here.

A Look At The Impact Of Casella Waste Systems' Dilution On Its Earnings Per Share (EPS)

Unfortunately, Casella Waste Systems' profit is down 67% per year over three years. Even looking at the last year, profit was still down 47%. Like a sack of potatoes thrown from a delivery truck, EPS fell harder, down 51% in the same period. And so, you can see quite clearly that dilution is influencing shareholder earnings.

In the long term, if Casella Waste Systems' 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 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.

How Do Unusual Items Influence Profit?

On top of the dilution, we should also consider the US$33m impact of unusual items in the last year, which had the effect of suppressing profit. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And, after all, that's exactly what the accounting terminology implies. If Casella Waste Systems doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Our Take On Casella Waste Systems' Profit Performance

To sum it all up, Casella Waste Systems took a hit from unusual items which pushed its profit down; without that, it would have made more money. But unfortunately the dilution means that shareholders now own a smaller proportion of the company (assuming they maintained the same number of shares). That will weigh on earnings per share, even if it is not reflected in net income. Considering the aforementioned, we think that Casella Waste Systems' profits are probably a reasonable reflection of its underlying profitability; although we'd be confident in that conclusion if we saw a cleaner set of results. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. Every company has risks, and we've spotted 4 warning signs for Casella Waste Systems (of which 1 doesn't sit too well with us!) you should know about.

Our examination of Casella Waste Systems has focussed on certain factors that can make its earnings look better than they are. 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. 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.