Stock Analysis

Investors Shouldn't Be Too Comfortable With Navigator Holdings' (NYSE:NVGS) Robust Earnings

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NYSE:NVGS
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Navigator Holdings Ltd. (NYSE:NVGS) announced strong profits, but the stock was stagnant. We did some digging, and we found some concerning factors in the details.

Check out our latest analysis for Navigator Holdings

earnings-and-revenue-history
NYSE:NVGS Earnings and Revenue History August 10th 2021

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. In fact, Navigator Holdings increased the number of shares on issue by 38% over the last twelve months by issuing new shares. That means its earnings are split among 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 Navigator Holdings' historical EPS growth by clicking on this link.

How Is Dilution Impacting Navigator Holdings' 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. 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. Therefore, one can observe that the dilution is having a fairly profound effect on shareholder returns.

In the long term, if Navigator Holdings' earnings per share can increase, then the share price should too. 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.

Our Take On Navigator Holdings' Profit Performance

Navigator Holdings 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 Navigator Holdings' 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. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. So while earnings quality is important, it's equally important to consider the risks facing Navigator Holdings at this point in time. Case in point: We've spotted 3 warning signs for Navigator Holdings you should be mindful of and 1 of these shouldn't be ignored.

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