The market shrugged off The Duckhorn Portfolio, Inc.'s (NYSE:NAPA) solid earnings report. We think that investors might be worried about some concerning underlying factors.
To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. Duckhorn Portfolio expanded the number of shares on issue by 28% over the last year. As a result, its net income is now split between 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 Duckhorn Portfolio's historical EPS growth by clicking on this link.
How Is Dilution Impacting Duckhorn Portfolio's Earnings Per Share (EPS)?
As you can see above, Duckhorn Portfolio has been growing its net income over the last few years, with an annualized gain of 36% over three years. But EPS was only up 22% per year, in the exact same period. And over the last 12 months, the company grew its profit by 9.7%. But in comparison, EPS only increased by 9.5% over the same period. 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 Duckhorn Portfolio shareholders will want to see that EPS figure continue to increase. However, if its profit increases while its earnings per share stay flat (or even fall) then shareholders might not see much benefit. 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 Duckhorn Portfolio's Profit Performance
Duckhorn Portfolio 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 Duckhorn Portfolio's true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 22% per annum growth in EPS for the last three. 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. If you want to do dive deeper into Duckhorn Portfolio, you'd also look into what risks it is currently facing. At Simply Wall St, we found 2 warning signs for Duckhorn Portfolio and we think they deserve your attention.
This note has only looked at a single factor that sheds light on the nature of Duckhorn Portfolio's 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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.
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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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com