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A lackluster earnings announcement from Northwest Natural Holding Company (NYSE:NWN) last week didn't sink the stock price. Our analysis suggests that along with soft profit numbers, investors should be aware of some other underlying weaknesses in the numbers.
View our latest analysis for Northwest Natural Holding
To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. In fact, Northwest Natural Holding increased the number of shares on issue by 9.1% over the last twelve months by issuing new shares. That means its earnings are split among 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 Northwest Natural Holding's historical EPS growth by clicking on this link.
How Is Dilution Impacting Northwest Natural Holding's Earnings Per Share (EPS)?
Northwest Natural Holding's net profit dropped by 6.5% per year over the last three years. Even looking at the last year, profit was still down 19%. Sadly, earnings per share fell further, down a full 24% in that time. Therefore, the dilution is having a noteworthy influence on shareholder returns.
In the long term, if Northwest Natural Holding'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.
Our Take On Northwest Natural Holding's Profit Performance
Northwest Natural Holding issued shares during the year, and that means its EPS performance lags its net income growth. Therefore, it seems possible to us that Northwest Natural Holding's true underlying earnings power is actually less than its statutory profit. Sadly, its EPS was down over the last twelve months. 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Our analysis shows 3 warning signs for Northwest Natural Holding (2 are a bit concerning!) and we strongly recommend you look at these before investing.