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The recent earnings posted by Vossloh AG (ETR:VOS) were solid, but the stock didn't move as much as we expected. We think this is due to investors looking beyond the statutory profits and being concerned with what they see.
To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. As it happens, Vossloh issued 10.0% more new shares over the last year. Therefore, each share now receives a smaller portion of profit. Per share metrics like EPS help us understand how much actual shareholders are benefitting from the company's profits, while the net income level gives us a better view of the company's absolute size. Check out Vossloh's historical EPS growth by clicking on this link .
How Is Dilution Impacting Vossloh's Earnings Per Share (EPS)?
As you can see above, Vossloh has been growing its net income over the last few years, with an annualized gain of 170% over three years. And the 68% profit boost in the last year certainly seems impressive at first glance. But in comparison, EPS only increased by 66% over the same period. And so, you can see quite clearly that dilution is influencing shareholder earnings.
Changes in the share price do tend to reflect changes in earnings per share, in the long run. So it will certainly be a positive for shareholders if Vossloh can grow EPS persistently. However, if its profit increases while its earnings per share stay flat (or even fall) then shareholders might not see much benefit. 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 Vossloh's Profit Performance
Vossloh 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 Vossloh's true underlying earnings power is actually less than its statutory profit. But on the bright side, its earnings per share have grown at an extremely impressive rate over the last three years. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Every company has risks, and we've spotted 1 warning sign for Vossloh you should know about.