The market for Black Hills Corporation's (NYSE:BKH) stock was strong after it released a healthy earnings report last week. However, we think that shareholders should be cautious as we found some worrying factors underlying the profit.

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. In fact, Black Hills increased the number of shares on issue by 5.3% 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 Black Hills' historical EPS growth by clicking on this link.

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

As you can see above, Black Hills has been growing its net income over the last few years, with an annualized gain of 4.9% over three years. But on the other hand, earnings per share actually fell by 4.3% per year. While we did see a very small decrease, net profit was basically flat over the last year. Meanwhile, EPS was actually down a full 3.7% over the period, highlighting just how different the profits look from a per-share perspective. So you can see that the dilution has had a bit of an impact on shareholders.

If Black Hills' 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 Black Hills' Profit Performance

Over the last year Black Hills issued new shares and so, there's a noteworthy divergence between EPS and net income growth. Because of this, we think that it may be that Black Hills' statutory profits are better than its underlying earnings power. In further bad news, its earnings per share decreased in the last year. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. To help with this, we've discovered 3 warning signs (1 makes us a bit uncomfortable!) that you ought to be aware of before buying any shares in Black Hills.

Today we've zoomed in on a single data point to better understand the nature of Black Hills' 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.