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The stock price didn't jump after Park-Ohio Holdings Corp. (NASDAQ:PKOH) posted decent earnings last week. We did some digging and believe investors may be worried about some underlying factors in the report.
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, Park-Ohio Holdings issued 15% more new shares over the last year. As a result, its net income is now split between 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. Check out Park-Ohio Holdings' historical EPS growth by clicking on this link.
A Look At The Impact Of Park-Ohio Holdings' Dilution On Its Earnings Per Share (EPS)
Three years ago, Park-Ohio Holdings lost money. The good news is that profit was up 8.1% in the last twelve months. But EPS was less impressive, and was pretty much flat over that time. So you can see that the dilution has had a bit of an impact on shareholders.
In the long term, earnings per share growth should beget share price growth. So Park-Ohio Holdings 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 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 Park-Ohio Holdings' Profit Performance
Park-Ohio Holdings shareholders should keep in mind how many new shares it is issuing, because, dilution clearly has the power to severely impact shareholder returns. Therefore, it seems possible to us that Park-Ohio Holdings' true underlying earnings power is actually less than its statutory profit. The good news is that its earnings per share increased slightly in the last year. 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. To that end, you should learn about the 4 warning signs we've spotted with Park-Ohio Holdings (including 1 which can't be ignored).