Perenti Limited's (ASX:PRN) robust recent earnings didn't do much to move the stock. We believe that shareholders have noticed some concerning factors beyond the statutory profit numbers.

View our latest analysis for Perenti

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. In fact, Perenti increased the number of shares on issue by 36% over the last twelve months by issuing new shares. That means its earnings are split among a greater number of shares. To celebrate net income while ignoring dilution is like rejoicing because you have a single slice of a larger pizza, but ignoring the fact that the pizza is now cut into many more slices. You can see a chart of Perenti's EPS by clicking here.

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

Three years ago, Perenti lost money. But over the last year profit has held pretty steady. Meanwhile, earnings per share were actually down 22%, over the last twelve months. Therefore, one can observe that the dilution is having a fairly profound effect on shareholder returns.

If Perenti'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 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.

How Do Unusual Items Influence Profit?

Finally, we should also consider the fact that unusual items boosted Perenti's net profit by AU$26m 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 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. And that's as you'd expect, given these boosts are described as 'unusual'. If Perenti doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Our Take On Perenti's Profit Performance

To sum it all up, Perenti got a nice boost to profit from unusual items; without that, its statutory results would have looked worse. And furthermore, it went and issued plenty of new shares, ensuring that each shareholder (who did not tip more money in) now owns a smaller proportion of the company. Considering all this we'd argue Perenti's profits probably give an overly generous impression of its sustainable level of profitability. 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. Case in point: We've spotted 2 warning signs for Perenti you should be aware of.