We Think You Should Be Aware Of Some Concerning Factors In Koninklijke Heijmans' (AMS:HEIJM) Earnings

Koninklijke Heijmans N.V.'s (AMS:HEIJM) healthy profit numbers didn't contain any surprises for investors. We believe that shareholders have noticed some concerning factors beyond the statutory profit numbers.

View our latest analysis for Koninklijke Heijmans

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. As it happens, Koninklijke Heijmans issued 14% more new shares over the last year. 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. You can see a chart of Koninklijke Heijmans' EPS by clicking here.

How Is Dilution Impacting Koninklijke Heijmans' Earnings Per Share (EPS)?

As you can see above, Koninklijke Heijmans has been growing its net income over the last few years, with an annualized gain of 49% over three years. In comparison, earnings per share only gained 30% over the same period. However, net income was pretty flat over the last year with a miniscule increase. In contrast, earnings per share are actually down a full 6.6%, over the last twelve months. So you can see that the dilution has had a bit of an impact on shareholders.

In the long term, if Koninklijke Heijmans' 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.

The Impact Of Unusual Items On Profit

Alongside that dilution, it's also important to note that Koninklijke Heijmans' profit was boosted by unusual items worth €14m in the last twelve months. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. Which is hardly surprising, given the name. If Koninklijke Heijmans doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Our Take On Koninklijke Heijmans' Profit Performance

To sum it all up, Koninklijke Heijmans got a nice boost to profit from unusual items; without that, its statutory results would have looked worse. On top of that, the dilution means that its earnings per share performance is worse than its profit performance. Considering all this we'd argue Koninklijke Heijmans' profits probably give an overly generous impression of its sustainable level of profitability. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. While conducting our analysis, we found that Koninklijke Heijmans has 3 warning signs and it would be unwise to ignore them.

In this article we've looked at a number of factors that can impair the utility of profit numbers, and we've come away cautious. 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. 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.