Star Bulk Carriers' (NASDAQ:SBLK) Shareholders Have More To Worry About Than Only Soft Earnings

Star Bulk Carriers Corp.'s (NASDAQ:SBLK) recent weak earnings report didn't cause a big stock movement. We think that investors are worried about some weaknesses underlying the earnings.

View our latest analysis for Star Bulk Carriers

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. In fact, Star Bulk Carriers increased the number of shares on issue by 15% over the last twelve months by issuing new shares. That means its earnings are split among a greater number of shares. To celebrate net income while ignoring dilution is like rejoicing because you have a single slice of a larger pizza, but ignoring the fact that the pizza is now cut into many more slices. Check out Star Bulk Carriers' historical EPS growth by clicking on this link.

How Is Dilution Impacting Star Bulk Carriers' Earnings Per Share (EPS)?

Star Bulk Carriers has improved its profit over the last three years, with an annualized gain of 25% in that time. Net income was down 7.5% over the last twelve months. Unfortunately for shareholders, though, the earnings per share result was even worse, declining 0.6%. Therefore, the dilution is having a noteworthy influence on shareholder returns.

If Star Bulk Carriers' EPS can grow over time then that drastically improves the chances of the share price moving in the same direction. 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.

Our Take On Star Bulk Carriers' Profit Performance

Over the last year Star Bulk Carriers issued new shares and so, there's a noteworthy divergence between EPS and net income growth. Therefore, it seems possible to us that Star Bulk Carriers' true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 29% per annum growth in EPS for the last three. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. In terms of investment risks, we've identified 3 warning signs with Star Bulk Carriers, and understanding them should be part of your investment process.

This note has only looked at a single factor that sheds light on the nature of Star Bulk Carriers' profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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 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.