Soft earnings didn't appear to concern Casella Waste Systems, Inc.'s (NASDAQ:CWST) shareholders over the last week. We think that the softer headline numbers might be getting counterbalanced by some positive underlying factors.

Check out our latest analysis for Casella Waste Systems

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. As it happens, Casella Waste Systems issued 9.2% more new shares over the last year. 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 Casella Waste Systems' historical EPS growth by clicking on this link.

How Is Dilution Impacting Casella Waste Systems' Earnings Per Share (EPS)?

Casella Waste Systems' net profit dropped by 67% per year over the last three years. And even focusing only on the last twelve months, we see profit is down 47%. Like a sack of potatoes thrown from a delivery truck, EPS fell harder, down 51% in the same period. So you can see that the dilution has had a bit of an impact on shareholders.

If Casella Waste Systems' 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.

The Impact Of Unusual Items On Profit

Alongside that dilution, it's also important to note that Casella Waste Systems' profit suffered from unusual items, which reduced profit by US$33m in the last twelve months. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect Casella Waste Systems to produce a higher profit next year, all else being equal.

Our Take On Casella Waste Systems' Profit Performance

Casella Waste Systems suffered from unusual items which depressed its profit in its last report; if that is not repeated then profit should be higher, all else being equal. But on the other hand, the company issued more shares, so without buying more shares each shareholder will end up with a smaller part of the profit. After taking into account all these factors, we think that Casella Waste Systems' statutory results are a decent reflection of its underlying earnings power. 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. Every company has risks, and we've spotted 4 warning signs for Casella Waste Systems (of which 1 can't be ignored!) you should know about.

Our examination of Casella Waste Systems has focussed on certain factors that can make its earnings look better than they are. But there are plenty of other ways to inform your opinion of a company. Some people consider a high return on equity to be a good sign of a quality business. While it might take a little research on your behalf, you may find this free collection of companies boasting high return on equity, or this list of stocks with significant insider holdings to be useful.

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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.