Many investors consider it preferable to invest in profitable companies over unprofitable ones, because profitability suggests a business is sustainable. Having said that, sometimes statutory profit levels are not a good guide to ongoing profitability, because some short term one-off factor has impacted profit levels. Today we’ll focus on whether this year’s statutory profits are a good guide to understanding DISH Network (NASDAQ:DISH).
We like the fact that DISH Network made a profit of US$1.27b on its revenue of US$12.8b, in the last year. Even though its revenue is down over the last three years, its profit has actually increased, as you can see, below.
View our latest analysis for DISH Network
Of course, when it comes to statutory profit, the devil is often in the detail, and we can get a better sense for a company by diving deeper into the financial statements. Therefore, today we will consider the nature of DISH Network’s statutory earnings with reference to its dilution of shareholders and the impact of unusual items. 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.
To understand the value of a company’s earnings growth, it is imperative to consider any dilution of shareholders’ interests. As it happens, DISH Network issued 6.6% more new shares over the last year. Therefore, each share now receives a smaller portion of profit. 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 DISH Network’s historical EPS growth by clicking on this link.
A Look At The Impact Of DISH Network’s Dilution on Its Earnings Per Share (EPS).
DISH Network has improved its profit over the last three years, with an annualized gain of 16% in that time. Net profit actually dropped by 11% in the last year. But the EPS result was even worth, with the company recording a decline of 18%. So you can see that the dilution has had a bit of an impact on shareholders. Therefore, the dilution is having a noteworthy influence on shareholder returns. And so, you can see quite clearly that dilution is influencing shareholder earnings.
If DISH Network’s EPS can grow over time then that drastically improves the chances of the share price moving in the same direction. 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.
How Do Unusual Items Influence Profit?
Alongside that dilution, it’s also important to note that DISH Network’s profit suffered from unusual items, which reduced profit by US$356m in the last twelve months. It’s never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that’s exactly what the accounting terminology implies. Assuming those unusual expenses don’t come up again, we’d therefore expect DISH Network to produce a higher profit next year, all else being equal.
Our Take On DISH Network’s Profit Performance
DISH Network suffered from unusual items which depressed its profit in its last report; if that is not repeated then profit should be higher, all else being equal. But on the other hand, the company issued more shares, so without buying more shares each shareholder will end up with a smaller part of the profit. Based on these factors, it’s hard to tell if DISH Network’s profits are a reasonable reflection of its underlying profitability. With this in mind, we wouldn’t consider investing in a stock unless we had a thorough understanding of the risks. Case in point: We’ve spotted 3 warning signs for DISH Network you should be aware of.
Our examination of DISH Network has focussed on certain factors that can make its earnings look better than they are. 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 that insiders are buying.
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This article by Simply Wall St is general in nature. 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.
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September 24, 2020 at 06:09PM
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Are DISH Network’s (NASDAQ:DISH) Statutory Earnings A Good Reflection Of Its Earnings Potential? - Simply Wall St
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