Havila Shipping's (OB:HAVI) Promising Earnings May Rest On Soft Foundations

Despite posting some strong earnings, the market for Havila Shipping ASA's (OB:HAVI) stock hasn't moved much. Our analysis suggests that this might be because shareholders have noticed some concerning underlying factors.

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One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. Havila Shipping expanded the number of shares on issue by 1,057% over the last year. Therefore, each share now receives a smaller portion of profit. To celebrate net income while ignoring dilution is like rejoicing because you have a single slice of a larger pizza, but ignoring the fact that the pizza is now cut into many more slices. Check out Havila Shipping's historical EPS growth by clicking on this link.

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

We don't have any data on the company's profits from three years ago. And even focusing only on the last twelve months, we don't have a meaningful growth rate because it made a loss a year ago, too. 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). And so, you can see quite clearly that dilution is having a rather significant impact on shareholders.

In the long term, if Havila Shipping'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.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Havila Shipping.

Our Take On Havila Shipping's Profit Performance

Havila Shipping issued shares during the year, and that means its EPS performance lags its net income growth. As a result, we think it may well be the case that Havila Shipping's underlying earnings power is lower than its statutory profit. The good news is that it earned a profit in the last twelve months, despite its previous loss. 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. For instance, we've identified 3 warning signs for Havila Shipping (2 are concerning) you should be familiar with.

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