Weak Statutory Earnings May Not Tell The Whole Story For Hensoldt (ETR:5UH)

Hensoldt AG's (ETR:5UH) stock showed strength, with investors undeterred by its weak earnings report. Sometimes, shareholders are willing to ignore soft numbers with the hope that they will improve, but our analysis suggests this is unlikely for Hensoldt.

Check out our latest analysis for Hensoldt

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. As it happens, Hensoldt issued 10.0% more new shares over the last year. 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 Hensoldt's historical EPS growth by clicking on this link.

A Look At The Impact Of Hensoldt's Dilution On Its Earnings Per Share (EPS)

Hensoldt's net profit dropped by 75% per year over the last three years. And even focusing only on the last twelve months, we see profit is down 87%. Sadly, earnings per share fell further, down a full 90% in that time. And so, you can see quite clearly that dilution is influencing shareholder earnings.

In the long term, if Hensoldt's earnings per share can increase, then the share price should too. 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 Hensoldt's Profit Performance

Over the last year Hensoldt issued new shares and so, there's a noteworthy divergence between EPS and net income growth. Therefore, it seems possible to us that Hensoldt's true underlying earnings power is actually less than its statutory profit. In further bad news, its earnings per share decreased 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. Every company has risks, and we've spotted 3 warning signs for Hensoldt (of which 1 doesn't sit too well with us!) you should know about.

Today we've zoomed in on a single data point to better understand the nature of Hensoldt'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 with significant insider holdings 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.