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Investors were disappointed with Silvercorp Metals Inc.'s (TSE:SVM) earnings, despite the strong profit numbers. Our analysis uncovered some concerning factors that we believe the market might be paying attention to.
View our latest analysis for Silvercorp Metals
To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. Silvercorp Metals expanded the number of shares on issue by 23% over the last year. 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 Silvercorp Metals' historical EPS growth by clicking on this link.
A Look At The Impact Of Silvercorp Metals' Dilution On Its Earnings Per Share (EPS)
As you can see above, Silvercorp Metals has been growing its net income over the last few years, with an annualized gain of 50% over three years. And the 72% profit boost in the last year certainly seems impressive at first glance. But in comparison, EPS only increased by 65% over the same period. Therefore, one can observe that the dilution is having a fairly profound effect on shareholder returns.
In the long term, earnings per share growth should beget share price growth. So Silvercorp Metals shareholders will want to see that EPS figure continue to increase. But on the other hand, we'd be far less excited to learn profit (but not EPS) was improving. 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
Alongside that dilution, it's also important to note that Silvercorp Metals' profit was boosted by unusual items worth US$8.8m in the last twelve months. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And that's as you'd expect, given these boosts are described as 'unusual'. 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).