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DEUTZ Aktiengesellschaft's (ETR:DEZ) stock showed strength, with investors undeterred by its weak earnings report. While shareholders may be willing to overlook soft profit numbers, we believe that they should also be taking into account some other factors which may be cause for concern.
To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. In fact, DEUTZ increased the number of shares on issue by 10.0% over the last twelve months by issuing new shares. As a result, its net income is now split between a greater number of shares. To celebrate net income while ignoring dilution is like rejoicing because you have a single slice of a larger pizza, but ignoring the fact that the pizza is now cut into many more slices. You can see a chart of DEUTZ's EPS by clicking here.
How Is Dilution Impacting DEUTZ's Earnings Per Share (EPS)?
As you can see above, DEUTZ has been growing its net income over the last few years, with an annualized gain of 9.9% over three years. Net profit actually dropped by 61% in the last year. Unfortunately for shareholders, though, the earnings per share result was even worse, declining 63%. And so, you can see quite clearly that dilution is influencing shareholder earnings.
In the long term, if DEUTZ's earnings per share can increase, then the share price should too. 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 DEUTZ's Profit Performance
DEUTZ issued shares during the year, and that means its EPS performance lags its net income growth. Because of this, we think that it may be that DEUTZ's statutory profits are better than its underlying earnings power. Sadly, its EPS was down over the last twelve months. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. If you want to do dive deeper into DEUTZ, you'd also look into what risks it is currently facing. At Simply Wall St, we found 3 warning signs for DEUTZ and we think they deserve your attention.