Why Solaris Energy Infrastructure's (NYSE:SEI) Shaky Earnings Are Just The Beginning Of Its Problems

Following the release of a lackluster earnings report from Solaris Energy Infrastructure, Inc. (NYSE:SEI) the stock price made a strong positive move. We did some analysis and found some positive factors that investors might be paying attention to rather than profit.

Check out our latest analysis for Solaris Energy Infrastructure

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. In fact, Solaris Energy Infrastructure increased the number of shares on issue by 37% over the last twelve months by issuing new shares. Therefore, each share now receives a smaller portion of profit. 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 Solaris Energy Infrastructure's EPS by clicking here.

How Is Dilution Impacting Solaris Energy Infrastructure's Earnings Per Share (EPS)?

Three years ago, Solaris Energy Infrastructure lost money. Even looking at the last year, profit was still down 46%. Like a sack of potatoes thrown from a delivery truck, EPS fell harder, down 42% in the same period. Therefore, one can observe that the dilution is having a fairly profound effect on shareholder returns.

If Solaris Energy Infrastructure's EPS can grow over time then that drastically improves the chances of the share price moving in the same direction. 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.

The Impact Of Unusual Items On Profit

On top of the dilution, we should also consider the US$3.8m 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. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's hardly a surprise given these line items are considered unusual. If Solaris Energy Infrastructure 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 Solaris Energy Infrastructure's Profit Performance

Solaris Energy Infrastructure suffered from unusual items which depressed its profit in its last report; if that is not repeated then profit should be higher, all else being equal. But on the other hand, the company issued more shares, so without buying more shares each shareholder will end up with a smaller part of the profit. Having considered these factors, we don't think Solaris Energy Infrastructure's statutory profits give an overly harsh view of the business. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. When we did our research, we found 5 warning signs for Solaris Energy Infrastructure (1 can't be ignored!) that we believe deserve your full attention.

In this article we've looked at a number of factors that can impair the utility of profit numbers, as a guide to a business. 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 with significant insider holdings to be useful.

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

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.