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DEUTZ Aktiengesellschaft's (ETR:DEZ) stock showed strength, with investors undeterred by its weak earnings report. We think that shareholders might be missing some concerning factors that our analysis found.
View our latest analysis for DEUTZ
One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. DEUTZ expanded the number of shares on issue by 15% over the last year. That means its earnings are split among 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. You can see a chart of DEUTZ's EPS by clicking here.
A Look At The Impact Of DEUTZ's Dilution On Its 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 141% over three years. In comparison, earnings per share only gained 121% over the same period. Net income was down 62% over the last twelve months. But the EPS result was even worse, with the company recording a decline of 64%. So you can see that the dilution has had a bit of an impact on shareholders.
If DEUTZ's EPS can grow over time then that drastically improves the chances of the share price moving in the same direction. 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.
Our Take On DEUTZ's Profit Performance
Over the last year DEUTZ issued new shares and so, there's a noteworthy divergence between EPS and net income growth. Because of this, we think that it may be that DEUTZ's 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. 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. In terms of investment risks, we've identified 3 warning signs with DEUTZ, and understanding them should be part of your investment process.