DEUTZ's (ETR:DEZ) Sluggish Earnings Might Be Just The Beginning Of Its Problems

A lackluster earnings announcement from DEUTZ Aktiengesellschaft (ETR:DEZ) last week didn't sink the stock price. Our analysis suggests that along with soft profit numbers, investors should be aware of some other underlying weaknesses in the numbers.

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One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. DEUTZ expanded the number of shares on issue by 10% over the last year. Therefore, each share now receives a smaller portion of profit. 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 DEUTZ's EPS by clicking here.

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

Unfortunately, DEUTZ's profit is down 36% per year over three years. Even looking at the last year, profit was still down 23%. Sadly, earnings per share fell further, down a full 30% in that time. Therefore, the dilution is having a noteworthy influence on shareholder returns.

If DEUTZ's EPS can grow over time then that drastically improves the chances of the share price moving in the same direction. 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 DEUTZ's Profit Performance

DEUTZ issued shares during the year, and that means its EPS performance lags its net income growth. Because of this, we think that it may be that DEUTZ's statutory profits are better than its underlying earnings power. In further bad news, its earnings per share decreased in the last year. 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. If you want to do dive deeper into DEUTZ, you'd also look into what risks it is currently facing. For example - DEUTZ has 1 warning sign we think you should be aware of.

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