Soft earnings didn't appear to concern The GEO Group, Inc.'s (NYSE:GEO) shareholders over the last week. We think that the softer headline numbers might be getting counterbalanced by some positive underlying factors.

See our latest analysis for GEO Group

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. GEO Group expanded the number of shares on issue by 12% over the last year. That means its earnings are split among a greater number of shares. 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. You can see a chart of GEO Group's EPS by clicking here.

A Look At The Impact Of GEO Group's Dilution On Its Earnings Per Share (EPS)

Unfortunately, GEO Group's profit is down 58% per year over three years. And even focusing only on the last twelve months, we see profit is down 66%. Like a sack of potatoes thrown from a delivery truck, EPS fell harder, down 69% in the same period. And so, you can see quite clearly that dilution is influencing shareholder earnings.

In the long term, if GEO Group's earnings per share can increase, then the share price should too. 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 GEO Group's profit suffered from unusual items, which reduced profit by US$92m 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. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect GEO Group to produce a higher profit next year, all else being equal.

Our Take On GEO Group's Profit Performance

GEO Group 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 unfortunately the dilution means that shareholders now own a smaller proportion of the company (assuming they maintained the same number of shares). That will weigh on earnings per share, even if it is not reflected in net income. Considering the aforementioned, we think that GEO Group's profits are probably a reasonable reflection of its underlying profitability; although we'd be confident in that conclusion if we saw a cleaner set of results. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. When we did our research, we found 3 warning signs for GEO Group (1 is potentially serious!) that we believe deserve your full attention.

Our examination of GEO Group 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. 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.