DSV's (CPH:DSV) Weak Earnings May Only Reveal A Part Of The Whole Picture

The market wasn't impressed with the soft earnings from DSV A/S (CPH:DSV) recently. We did some further digging and think they have a few more reasons to be concerned beyond the statutory profit.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. In fact, DSV increased the number of shares on issue by 13% over the last twelve months by issuing new shares. That means its earnings are split among 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 DSV's historical EPS growth by clicking on this link.

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

Unfortunately, DSV's profit is down 36% per year over three years. Even looking at the last year, profit was still down 5.6%. Like a sack of potatoes thrown from a delivery truck, EPS fell harder, down 13% in the same period. Therefore, the dilution is having a noteworthy influence on shareholder returns.

In the long term, if DSV'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 DSV's Profit Performance

DSV issued shares during the year, and that means its EPS performance lags its net income growth. Therefore, it seems possible to us that DSV'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. 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. For example, we've discovered 1 warning sign that you should run your eye over to get a better picture of DSV.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.