We Think That There Are Some Issues For American Water Works Company (NYSE:AWK) Beyond Its Promising Earnings

The recent earnings posted by American Water Works Company, Inc. (NYSE:AWK) were solid, but the stock didn't move as much as we expected. We think this is due to investors looking beyond the statutory profits and being concerned with what they see.

Check out our latest analysis for American Water Works Company

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, American Water Works Company issued 7.1% more new shares 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 American Water Works Company's EPS by clicking here.

How Is Dilution Impacting American Water Works Company's Earnings Per Share (EPS)?

American Water Works Company has improved its profit over the last three years, with an annualized gain of 33% in that time. And over the last 12 months, the company grew its profit by 15%. On the other hand, earnings per share are only up 8.6% in that time. So you can see that the dilution has had a bit of an impact on shareholders.

Changes in the share price do tend to reflect changes in earnings per share, in the long run. So American Water Works Company 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 American Water Works Company's Profit Performance

American Water Works Company shareholders should keep in mind how many new shares it is issuing, because, dilution clearly has the power to severely impact shareholder returns. Therefore, it seems possible to us that American Water Works Company's true underlying earnings power is actually less than its statutory profit. Nonetheless, it's still worth noting that its earnings per share have grown at 25% over the last three years. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. If you want to do dive deeper into American Water Works Company, you'd also look into what risks it is currently facing. For instance, we've identified 3 warning signs for American Water Works Company (1 is a bit concerning) you should be familiar with.

This note has only looked at a single factor that sheds light on the nature of American Water Works Company'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.

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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.