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Chart Industries, Inc.'s (NYSE:GTLS) stock was strong after they recently reported robust earnings. However, we think that shareholders may be missing some concerning details in the numbers.
We've discovered 1 warning sign about Chart Industries. View them for free.
One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. In fact, Chart Industries increased the number of shares on issue by 6.9% 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 Chart Industries' EPS by clicking here.
How Is Dilution Impacting Chart Industries' Earnings Per Share (EPS)?
As you can see above, Chart Industries has been growing its net income over the last few years, with an annualized gain of 433% over three years. In comparison, earnings per share only gained 343% over the same period. And the 366% profit boost in the last year certainly seems impressive at first glance. On the other hand, earnings per share are only up 356% in that time. Therefore, the dilution is having a noteworthy influence on shareholder returns.
Changes in the share price do tend to reflect changes in earnings per share, in the long run. So Chart Industries shareholders will want to see that EPS figure continue to increase. 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.
Our Take On Chart Industries' Profit Performance
Chart Industries shareholders should keep in mind how many new shares it is issuing, because, dilution clearly has the power to severely impact shareholder returns. Because of this, we think that it may be that Chart Industries' statutory profits are better than its underlying earnings power. But on the bright side, its earnings per share have grown at an extremely impressive rate over the last three years. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. So while earnings quality is important, it's equally important to consider the risks facing Chart Industries at this point in time. In terms of investment risks, we've identified 1 warning sign with Chart Industries, and understanding this should be part of your investment process.