Hemnet Group's (STO:HEM) Shareholders May Want To Dig Deeper Than Statutory Profit

Hemnet Group AB (publ)'s (STO:HEM) healthy profit numbers didn't contain any surprises for investors. However the statutory profit number doesn't tell the whole story, and we have found some factors which might be of concern to shareholders.

See our latest analysis for Hemnet Group

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. In fact, Hemnet Group increased the number of shares on issue by 5.3% 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 Hemnet Group's EPS by clicking here.

A Look At The Impact Of Hemnet Group's Dilution On Its Earnings Per Share (EPS)

As you can see above, Hemnet Group has been growing its net income over the last few years, with an annualized gain of 400% over three years. And over the last 12 months, the company grew its profit by 15%. On the other hand, earnings per share are only up 18% in that time. And so, you can see quite clearly that dilution is influencing shareholder earnings.

In the long term, earnings per share growth should beget share price growth. So it will certainly be a positive for shareholders if Hemnet Group can grow EPS persistently. 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 Hemnet Group's Profit Performance

Each Hemnet Group share now gets a meaningfully smaller slice of its overall profit, due to dilution of existing shareholders. Therefore, it seems possible to us that Hemnet Group's true underlying earnings power is actually less than its statutory profit. But the good news is that its EPS growth over the last three years has been very impressive. 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 Hemnet Group at this point in time. Every company has risks, and we've spotted 2 warning signs for Hemnet Group you should know about.

This note has only looked at a single factor that sheds light on the nature of Hemnet Group's profit. But there are plenty of other ways to inform your opinion of a company. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to 'follow the money' and search out stocks that insiders are buying. 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 that insiders are buying to be useful.

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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.