DMG Mori's (TSE:6141) Shareholders Have More To Worry About Than Only Soft Earnings

The market wasn't impressed with the soft earnings from DMG Mori Co., Ltd. (TSE:6141) recently. Our analysis has found some reasons to be concerned, beyond the weak headline numbers.

View our latest analysis for DMG Mori

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. DMG Mori expanded the number of shares on issue by 13% 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 DMG Mori's historical EPS growth by clicking on this link.

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

As you can see above, DMG Mori has been growing its net income over the last few years, with an annualized gain of 161% over three years. In comparison, earnings per share only gained 143% over the same period. Net profit actually dropped by 14% in the last year. Unfortunately for shareholders, though, the earnings per share result was even worse, declining 19%. Therefore, the dilution is having a noteworthy influence on shareholder returns.

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

DMG Mori issued shares during the year, and that means its EPS performance lags its net income growth. Therefore, it seems possible to us that DMG Mori's true underlying earnings power is actually less than its statutory profit. But on the bright side, its earnings per share have grown at an extremely impressive rate over the last three years. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. If you'd like to know more about DMG Mori as a business, it's important to be aware of any risks it's facing. In terms of investment risks, we've identified 3 warning signs with DMG Mori, and understanding them should be part of your investment process.

Today we've zoomed in on a single data point to better understand the nature of DMG Mori's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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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.