SJW Group's (NASDAQ:SJW) Profits Appear To Have Quality Issues

SJW Group's (NASDAQ:SJW) robust recent earnings didn't do much to move the stock. However the statutory profit number doesn't tell the whole story, and we have found some factors which might be of concern to shareholders.

Check out our latest analysis for SJW Group

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. SJW Group expanded the number of shares on issue by 5.0% over the last year. That means its earnings are split among 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. Check out SJW Group's historical EPS growth by clicking on this link.

How Is Dilution Impacting SJW Group's Earnings Per Share (EPS)?

As you can see above, SJW Group has been growing its net income over the last few years, with an annualized gain of 55% over three years. In comparison, earnings per share only gained 41% over the same period. And over the last 12 months, the company grew its profit by 11%. On the other hand, earnings per share are only up 6.8% in that time. Therefore, the dilution is having a noteworthy influence on shareholder returns.

Changes in the share price do tend to reflect changes in earnings per share, in the long run. So SJW Group 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.

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 SJW Group's Profit Performance

Each SJW Group share now gets a meaningfully smaller slice of its overall profit, due to dilution of existing shareholders. Therefore, it seems possible to us that SJW Group's true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 41% 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. To help with this, we've discovered 2 warning signs (1 is significant!) that you ought to be aware of before buying any shares in SJW Group.

Today we've zoomed in on a single data point to better understand the nature of SJW Group'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 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.