Why Seven Group Holdings' (ASX:SVW) Shaky Earnings Are Just The Beginning Of Its Problems

Despite Seven Group Holdings Limited's (ASX:SVW) recent earnings report having lackluster headline numbers, the market responded positively. We think that shareholders might be missing some concerning factors that our analysis found.

Check out our latest analysis for Seven Group Holdings

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. In fact, Seven Group Holdings increased the number of shares on issue by 12% over the last twelve months by issuing new shares. 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 Seven Group Holdings' historical EPS growth by clicking on this link.

How Is Dilution Impacting Seven Group Holdings' Earnings Per Share (EPS)?

Seven Group Holdings' net profit dropped by 26% per year over the last three years. Even looking at the last year, profit was still down 23%. Like a sack of potatoes thrown from a delivery truck, EPS fell harder, down 24% in the same period. So you can see that the dilution has had a bit of an impact on shareholders.

In the long term, if Seven Group Holdings' 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 Seven Group Holdings' Profit Performance

Over the last year Seven Group Holdings issued new shares and so, there's a noteworthy divergence between EPS and net income growth. Therefore, it seems possible to us that Seven Group Holdings' 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. If you'd like to know more about Seven Group Holdings as a business, it's important to be aware of any risks it's facing. Case in point: We've spotted 2 warning signs for Seven Group Holdings you should be mindful of and 1 of these bad boys is concerning.

This note has only looked at a single factor that sheds light on the nature of Seven Group Holdings' profit. But there are plenty of other ways to inform your opinion of a company. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to 'follow the money' and search out stocks that insiders are buying. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.