Algoma Central Corporation's (TSE:ALC) 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 Algoma Central

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. As it happens, Algoma Central issued 5.6% more new shares 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 Algoma Central's EPS by clicking here.

A Look At The Impact Of Algoma Central's Dilution On Its Earnings Per Share (EPS)

As you can see above, Algoma Central has been growing its net income over the last few years, with an annualized gain of 13% over three years. Net income was down 34% over the last twelve months. Unfortunately for shareholders, though, the earnings per share result was even worse, declining 36%. Therefore, the dilution is having a noteworthy influence on shareholder returns.

If Algoma Central'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.

How Do Unusual Items Influence Profit?

Finally, we should also consider the fact that unusual items boosted Algoma Central's net profit by CA$5.1m over the last year. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. Which is hardly surprising, given the name. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

Our Take On Algoma Central's Profit Performance

In its last report Algoma Central benefitted from unusual items which boosted its profit, which could make the profit seem better than it really is on a sustainable basis. On top of that, the dilution means that its earnings per share performance is worse than its profit performance. For the reasons mentioned above, we think that a perfunctory glance at Algoma Central's statutory profits might make it look better than it really is on an underlying level. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. Every company has risks, and we've spotted 4 warning signs for Algoma Central you should know about.