BWG's (OB:BWLPG) Weak Earnings May Only Reveal A Part Of The Whole Picture

BW LPG Limited's (OB:BWLPG) recent weak earnings report didn't cause a big stock movement. Our analysis suggests that along with soft profit numbers, investors should be aware of some other underlying weaknesses in the numbers.

See our latest analysis for BWG

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. As it happens, BWG issued 16% more new shares over the last year. As a result, its net income is now split between a greater number of shares. To talk about net income, without noticing earnings per share, is to be distracted by the big numbers while ignoring the smaller numbers that talk to per share value. Check out BWG's historical EPS growth by clicking on this link.

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

As you can see above, BWG has been growing its net income over the last few years, with an annualized gain of 92% over three years. Net profit actually dropped by 25% in the last year. But the EPS result was even worse, with the company recording a decline of 25%. Therefore, the dilution is having a noteworthy influence on shareholder returns.

If BWG'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 BWG's Profit Performance

Over the last year BWG issued new shares and so, there's a noteworthy divergence between EPS and net income growth. Therefore, it seems possible to us that BWG'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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. To help with this, we've discovered 4 warning signs (2 are a bit unpleasant!) that you ought to be aware of before buying any shares in BWG.

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