We Think That There Are Some Issues For Savaria (TSE:SIS) Beyond Its Promising Earnings

Savaria Corporation's (TSE:SIS) healthy profit numbers didn't contain any surprises for investors. We think this is due to investors looking beyond the statutory profits and being concerned with what they see.

See our latest analysis for Savaria

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. In fact, Savaria increased the number of shares on issue by 10.0% 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. Check out Savaria's historical EPS growth by clicking on this link.

How Is Dilution Impacting Savaria's Earnings Per Share (EPS)?

As you can see above, Savaria has been growing its net income over the last few years, with an annualized gain of 43% over three years. In comparison, earnings per share only gained 9.5% over the same period. And over the last 12 months, the company grew its profit by 7.2%. On the other hand, earnings per share are only up 4.0% in 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 it will certainly be a positive for shareholders if Savaria can grow EPS persistently. 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 Savaria's Profit Performance

Savaria 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 Savaria's statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 9.5% per annum growth in EPS for the last three. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. For example - Savaria has 3 warning signs we think you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Savaria's 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. 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.