Robust Earnings May Not Tell The Whole Story For SG Fleet Group (ASX:SGF)

SG Fleet Group Limited (ASX:SGF) announced strong profits, but the stock was stagnant. Our analysis suggests that shareholders have noticed something concerning in the numbers.

View our latest analysis for SG Fleet Group

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. In fact, SG Fleet Group increased the number of shares on issue by 13% over the last twelve months by issuing new shares. As a result, its net income is now split between 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. You can see a chart of SG Fleet Group's EPS by clicking here.

How Is Dilution Impacting SG Fleet Group's Earnings Per Share? (EPS)

SG Fleet Group's net profit dropped by 35% per year over the last three years. The good news is that profit was up 20% in the last twelve months. But EPS was less impressive, up only 17% in that time. And so, you can see quite clearly that dilution is influencing shareholder earnings.

In the long term, earnings per share growth should beget share price growth. So it will certainly be a positive for shareholders if SG Fleet Group 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 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 SG Fleet Group's Profit Performance

SG Fleet Group shareholders should keep in mind how many new shares it is issuing, because, dilution clearly has the power to severely impact shareholder returns. Because of this, we think that it may be that SG Fleet Group's statutory profits are better than its underlying earnings power. The good news is that, its earnings per share increased by 17% in the last year. 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. So while earnings quality is important, it's equally important to consider the risks facing SG Fleet Group at this point in time. While conducting our analysis, we found that SG Fleet Group has 3 warning signs and it would be unwise to ignore these.

This note has only looked at a single factor that sheds light on the nature of SG Fleet Group's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. Some people consider a high return on equity to be a good sign of a quality business. While it might take a little research on your behalf, you may find this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying to be useful.

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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.
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