There May Be Underlying Issues With The Quality Of Universal Technical Institute's (NYSE:UTI) Earnings

Unsurprisingly, Universal Technical Institute, Inc.'s (NYSE:UTI) stock price was strong on the back of its healthy earnings report. We did some analysis and think that investors are missing some details hidden beneath the profit numbers.

View our latest analysis for Universal Technical Institute

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. As it happens, Universal Technical Institute issued 58% more new shares over the last year. That means its earnings are split among 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 Universal Technical Institute's EPS by clicking here.

A Look At The Impact Of Universal Technical Institute's Dilution On Its Earnings Per Share (EPS)

Three years ago, Universal Technical Institute lost money. On the bright side, in the last twelve months it grew profit by 85%. But EPS was less impressive, up only 79% in that time. Therefore, one can observe that the dilution is having a fairly profound effect on shareholder returns.

In the long term, earnings per share growth should beget share price growth. So Universal Technical Institute shareholders will want to see that EPS figure continue to increase. But on the other hand, we'd be far less excited to learn profit (but not EPS) was improving. 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.

Our Take On Universal Technical Institute's Profit Performance

Universal Technical Institute shareholders should keep in mind how many new shares it is issuing, because, dilution clearly has the power to severely impact shareholder returns. For this reason, we think that Universal Technical Institute's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. The good news is that, its earnings per share increased by 79% in the last year. 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 while earnings quality is important, it's equally important to consider the risks facing Universal Technical Institute at this point in time. Every company has risks, and we've spotted 1 warning sign for Universal Technical Institute you should know about.

Today we've zoomed in on a single data point to better understand the nature of Universal Technical Institute'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 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.