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Despite DEUTZ Aktiengesellschaft's (ETR:DEZ) recent earnings report having lackluster headline numbers, the market responded positively. We think that shareholders might be missing some concerning factors that our analysis found.
Our free stock report includes 3 warning signs investors should be aware of before investing in DEUTZ. Read for free now.
In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. DEUTZ expanded the number of shares on issue by 10.0% over the last year. As a result, its net income is now split between 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 DEUTZ's historical EPS growth by clicking on this link.
How Is Dilution Impacting DEUTZ's Earnings Per Share (EPS)?
Unfortunately, DEUTZ's profit is down 66% per year over three years. And even focusing only on the last twelve months, we see profit is down 84%. Like a sack of potatoes thrown from a delivery truck, EPS fell harder, down 85% in the same period. So you can see that the dilution has had a bit of an impact on shareholders.
In the long term, if DEUTZ'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 the ordinary retail shareholder, EPS is a great measure to check your hypothetical "share" of the company's profit.
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 DEUTZ's profit was boosted by unusual items worth €900k in the last twelve months. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. 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. If DEUTZ doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.
Our Take On DEUTZ's Profit Performance
In its last report DEUTZ benefitted from unusual items which boosted its profit, which could make the profit seem better than it really is on a sustainable basis. And furthermore, it went and issued plenty of new shares, ensuring that each shareholder (who did not tip more money in) now owns a smaller proportion of the company. Considering all this we'd argue DEUTZ's profits probably give an overly generous impression of its sustainable level of profitability. If you'd like to know more about DEUTZ as a business, it's important to be aware of any risks it's facing. Every company has risks, and we've spotted 3 warning signs for DEUTZ you should know about.