A lackluster earnings announcement from Portland General Electric Company (NYSE:POR) last week didn't sink the stock price. Our analysis suggests that along with soft profit numbers, investors should be aware of some other underlying weaknesses in the numbers.
One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. In fact, Portland General Electric increased the number of shares on issue by 5.9% over the last twelve months by issuing new shares. 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 Portland General Electric's historical EPS growth by clicking on this link.
How Is Dilution Impacting Portland General Electric's Earnings Per Share (EPS)?
As you can see above, Portland General Electric has been growing its net income over the last few years, with an annualized gain of 29% over three years. In comparison, earnings per share only gained 6.1% over the same period. Net income was down 9.9% over the last twelve months. Unfortunately for shareholders, though, the earnings per share result was even worse, declining 15%. Therefore, the dilution is having a noteworthy influence on shareholder returns.
If Portland General Electric'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.
Our Take On Portland General Electric's Profit Performance
Portland General Electric issued shares during the year, and that means its EPS performance lags its net income growth. Therefore, it seems possible to us that Portland General Electric's true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 6.1% 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. Every company has risks, and we've spotted 2 warning signs for Portland General Electric you should know about.
This note has only looked at a single factor that sheds light on the nature of Portland General Electric's profit. 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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