Deep Value Driller (OB:DVD) Posted Healthy Earnings But There Are Some Other Factors To Be Aware Of

Deep Value Driller AS' (OB:DVD) stock was strong after they recently reported robust earnings. However, our analysis suggests that shareholders may be missing some factors that indicate the earnings result was not as good as it looked.

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One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. Deep Value Driller expanded the number of shares on issue by 7.9% 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. You can see a chart of Deep Value Driller's EPS by clicking here.

A Look At The Impact Of Deep Value Driller's Dilution On Its Earnings Per Share (EPS)

Deep Value Driller was losing money three years ago. Zooming in to the last year, we still can't talk about growth rates coherently, since it made a loss last year. But mathematics aside, it is always good to see when a formerly unprofitable business come good (though we accept profit would have been higher if dilution had not been required). Therefore, the dilution is having a noteworthy influence on shareholder returns.

In the long term, if Deep Value Driller's earnings per share can increase, then the share price should too. 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 Deep Value Driller's Profit Performance

Over the last year Deep Value Driller 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 Deep Value Driller's statutory profits are better than its underlying earnings power. The good news is that it earned a profit in the last twelve months, despite its previous loss. 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 while earnings quality is important, it's equally important to consider the risks facing Deep Value Driller at this point in time. Our analysis shows 3 warning signs for Deep Value Driller (2 are concerning!) and we strongly recommend you look at them before investing.

This note has only looked at a single factor that sheds light on the nature of Deep Value Driller's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. Some people consider a high return on equity to be a good sign of a quality business. 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.