The recent earnings posted by Chesapeake Utilities Corporation (NYSE:CPK) 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.

View our latest analysis for Chesapeake Utilities

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. In fact, Chesapeake Utilities increased the number of shares on issue by 26% 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 Chesapeake Utilities' historical EPS growth by clicking on this link.

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

As you can see above, Chesapeake Utilities has been growing its net income over the last few years, with an annualized gain of 25% over three years. But EPS was only up 4.8% per year, in the exact same period. And over the last 12 months, the company grew its profit by 12%. But that's starkly different from the 3.2% drop in earnings per share. Therefore, one can observe that the dilution is having a fairly profound effect on shareholder returns.

If Chesapeake Utilities' 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.

Our Take On Chesapeake Utilities' Profit Performance

Each Chesapeake Utilities share now gets a meaningfully smaller slice of its overall profit, due to dilution of existing shareholders. Therefore, it seems possible to us that Chesapeake Utilities' true underlying earnings power is actually less than its statutory profit. Sadly, its EPS was down over the last twelve months. 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'd like to know more about Chesapeake Utilities as a business, it's important to be aware of any risks it's facing. Case in point: We've spotted 3 warning signs for Chesapeake Utilities you should be mindful of and 1 of these is significant.

Today we've zoomed in on a single data point to better understand the nature of Chesapeake Utilities' 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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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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.