Despite posting some strong earnings, the market for Symrise AG's (ETR:SY1) stock hasn't moved much. Our analysis suggests that this might be because shareholders have noticed some concerning underlying factors.
One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. In fact, Symrise increased the number of shares on issue by 8.8% 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 Symrise's historical EPS growth by clicking on this link.
How Is Dilution Impacting Symrise's Earnings Per Share? (EPS)
As you can see above, Symrise has been growing its net income over the last few years, with an annualized gain of 23% over three years. And over the last 12 months, the company grew its profit by 6.2%. On the other hand, earnings per share are only up 6.3% in that time. Therefore, the dilution is having a noteworthy influence on shareholder returns.
In the long term, earnings per share growth should beget share price growth. So it will certainly be a positive for shareholders if Symrise 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 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 Symrise's Profit Performance
Each Symrise share now gets a meaningfully smaller slice of its overall profit, due to dilution of existing shareholders. Therefore, it seems possible to us that Symrise's true underlying earnings power is actually less than its statutory profit. Nonetheless, it's still worth noting that its earnings per share have grown at 18% over the last three years. 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. At Simply Wall St, we found 2 warning signs for Symrise and we think they deserve your attention.
This note has only looked at a single factor that sheds light on the nature of Symrise's profit. But there are plenty of other ways to inform your opinion of a company. Some people consider a high return on equity to be a good sign of a quality business. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.
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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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