Last week's profit announcement from National Fuel Gas Company (NYSE:NFG) was underwhelming for investors, despite headline numbers being robust. We did some digging and found some worrying underlying problems.
To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. In fact, National Fuel Gas increased the number of shares on issue by 5.2% over the last twelve months by issuing new shares. Therefore, each share now receives a smaller portion of profit. 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 National Fuel Gas' EPS by clicking here.
How Is Dilution Impacting National Fuel Gas' Earnings Per Share (EPS)?
National Fuel Gas has improved its profit over the last three years, with an annualized gain of 40% in that time. And the 28% profit boost in the last year certainly seems impressive at first glance. On the other hand, earnings per share are only up 23% in that time. Therefore, the dilution is having a noteworthy influence on shareholder returns.
In the long term, earnings per share growth should beget share price growth. So National Fuel Gas 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 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 National Fuel Gas' Profit Performance
National Fuel Gas shareholders should keep in mind how many new shares it is issuing, because, dilution clearly has the power to severely impact shareholder returns. Therefore, it seems possible to us that National Fuel Gas' true underlying earnings power is actually less than its statutory profit. Nonetheless, it's still worth noting that its earnings per share have grown at 36% over the last three years. 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. If you'd like to know more about National Fuel Gas as a business, it's important to be aware of any risks it's facing. At Simply Wall St, we found 2 warning signs for National Fuel Gas and we think they deserve your attention.
Today we've zoomed in on a single data point to better understand the nature of National Fuel Gas' profit. But there are plenty of other ways to inform your opinion of a company. 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 with significant insider holdings to be useful.
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