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Despite DEUTZ Aktiengesellschaft's (ETR:DEZ) recent earnings report having lackluster headline numbers, the market responded positively. 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.
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In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. As it happens, DEUTZ issued 10.0% more new shares over the last year. 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. 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 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.
How Do Unusual Items Influence 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. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. 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.