Bluegreen Vacations Holding's (NYSE:BVH) Solid Earnings May Rest On Weak Foundations

By
Simply Wall St
Published
August 10, 2021
NYSE:BVH
Source: Shutterstock

Following the solid earnings report from Bluegreen Vacations Holding Corporation (NYSE:BVH), the market responded by bidding up the stock price. Despite this, our analysis suggests that there are some factors weakening the foundations of those good profit numbers.

See our latest analysis for Bluegreen Vacations Holding

earnings-and-revenue-history
NYSE:BVH Earnings and Revenue History August 11th 2021

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. As it happens, Bluegreen Vacations Holding issued 14% more new shares over the last year. That means its earnings are split among a greater number of shares. 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. You can see a chart of Bluegreen Vacations Holding's EPS by clicking here.

How Is Dilution Impacting Bluegreen Vacations Holding's Earnings Per Share? (EPS)

As it happens, we don't know how much the company made or lost three years ago, because we don't have the data. Zooming in to the last year, we still can't talk about growth rates coherently, since it made a loss last year. What we do know is that while it's great to see a profit over the last twelve months, that profit would have been better, on a per share basis, if the company hadn't needed to issue shares. So you can see that the dilution has had a bit of an impact on shareholders.

If Bluegreen Vacations Holding'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 that reason, you could say that EPS is more important that net income in the long run, assuming the goal is to assess whether a company's share price might grow.

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.

How Do Unusual Items Influence Profit?

Finally, we should also consider the fact that unusual items boosted Bluegreen Vacations Holding's net profit by US$10m over the last year. 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. And that's as you'd expect, given these boosts are described as 'unusual'. If Bluegreen Vacations Holding 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 Bluegreen Vacations Holding's Profit Performance

In its last report Bluegreen Vacations Holding benefitted from unusual items which boosted its profit, which could make the profit seem better than it really is on a sustainable basis. And furthermore, it went and issued plenty of new shares, ensuring that each shareholder (who did not tip more money in) now owns a smaller proportion of the company. For the reasons mentioned above, we think that a perfunctory glance at Bluegreen Vacations Holding's statutory profits might make it look better than it really is on an underlying level. If you'd like to know more about Bluegreen Vacations Holding as a business, it's important to be aware of any risks it's facing. For instance, we've identified 3 warning signs for Bluegreen Vacations Holding (1 is a bit concerning) you should be familiar with.

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 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. 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 that insiders are buying to be useful.

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