Weak Statutory Earnings May Not Tell The Whole Story For DSV (CPH:DSV)

The subdued market reaction suggests that DSV A/S' (CPH:DSV) recent earnings didn't contain any surprises. We think that investors are worried about some weaknesses underlying the earnings.

View our latest analysis for DSV

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. DSV expanded the number of shares on issue by 11% over the last year. As a result, its net income is now split between a greater number of shares. 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 DSV's historical EPS growth by clicking on this link.

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

DSV has improved its profit over the last three years, with an annualized gain of 18% in that time. Net income was down 18% over the last twelve months. Unfortunately for shareholders, though, the earnings per share result was even worse, declining 15%. So you can see that the dilution has had a bit of an impact on shareholders.

If DSV'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 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

Over the last year DSV issued new shares and so, there's a noteworthy divergence between EPS and net income growth. Because of this, we think that it may be that DSV's statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 27% per annum growth in EPS for the last three. 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. At Simply Wall St, we found 1 warning sign for DSV and we think they deserve your attention.

This note has only looked at a single factor that sheds light on the nature of DSV'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.