The recent earnings posted by Nickel Industries Limited (ASX:NIC) 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 Nickel Industries

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. In fact, Nickel Industries increased the number of shares on issue by 25% over the last twelve months by issuing new shares. 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. Check out Nickel Industries' historical EPS growth by clicking on this link.

How Is Dilution Impacting Nickel Industries' Earnings Per Share (EPS)?

Unfortunately, Nickel Industries' profit is down 34% per year over three years. On the bright side, in the last twelve months it grew profit by 6.3%. But EPS was far less impressive, dropping 25% in that time. This is a great example of why it's rather imprudent to rely only on net income as a growth measure. And so, you can see quite clearly that dilution is having a rather significant impact on shareholders.

If Nickel Industries' 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 Nickel Industries' Profit Performance

Each Nickel Industries share now gets a meaningfully smaller slice of its overall profit, due to dilution of existing shareholders. Therefore, it seems possible to us that Nickel Industries' 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 Nickel Industries as a business, it's important to be aware of any risks it's facing. In terms of investment risks, we've identified 2 warning signs with Nickel Industries, and understanding them should be part of your investment process.