Acrow Limited's (ASX:ACF ) stock didn't jump after it announced some healthy earnings. We think that investors might be worried about some concerning underlying factors.

See our latest analysis for Acrow

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. Acrow expanded the number of shares on issue by 13% over the last year. Therefore, each share now receives a smaller portion of profit. Per share metrics like EPS help us understand how much actual shareholders are benefitting from the company's profits, while the net income level gives us a better view of the company's absolute size. You can see a chart of Acrow's EPS by clicking here.

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

Acrow has improved its profit over the last three years, with an annualized gain of 540% in that time. But EPS was only up 387% per year, in the exact same period. And over the last 12 months, the company grew its profit by 8.1%. On the other hand, earnings per share are pretty much flat, over the last twelve months. Therefore, the dilution is having a noteworthy influence on shareholder returns.

In the long term, if Acrow's earnings per share can increase, then the share price should too. However, if its profit increases while its earnings per share stay flat (or even fall) then shareholders might not see much benefit. For that reason, you could say that EPS is more important that net income in the long run, assuming the goal is to assess whether a company's share price might grow.

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

Finally, we should also consider the fact that unusual items boosted Acrow's net profit by AU$12m over the last year. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that's exactly what the accounting terminology implies. We can see that Acrow's positive unusual items were quite significant relative to its profit in the year to June 2024. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.