Despite posting some strong earnings, the market for Hollister Biosciences Inc.'s (CSE:HOLL) stock hasn't moved much. We did some digging, and we found some concerning factors in the details.
In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. Hollister Biosciences expanded the number of shares on issue by 29% over the last year. Therefore, each share now receives a smaller portion of profit. To celebrate net income while ignoring dilution is like rejoicing because you have a single slice of a larger pizza, but ignoring the fact that the pizza is now cut into many more slices. Check out Hollister Biosciences' historical EPS growth by clicking on this link.
A Look At The Impact Of Hollister Biosciences' Dilution on Its Earnings Per Share (EPS).
Hollister Biosciences was losing money three years ago. Zooming in to the last year, we still can't talk about growth rates coherently, since it made a loss last year. But mathematics aside, it is always good to see when a formerly unprofitable business come good (though we accept profit would have been higher if dilution had not been required). So you can see that the dilution has had a fairly significant impact on shareholders.
If Hollister Biosciences' EPS can grow over time then that drastically improves the chances of the share price moving in the same direction. 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.
Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Hollister Biosciences.
Our Take On Hollister Biosciences' Profit Performance
Hollister Biosciences issued shares during the year, and that means its EPS performance lags its net income growth. Therefore, it seems possible to us that Hollister Biosciences' true underlying earnings power is actually less than its statutory profit. On the bright side, the company showed enough improvement to book a profit this year, after losing money last year. 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. If you want to do dive deeper into Hollister Biosciences, you'd also look into what risks it is currently facing. For example, we've discovered 3 warning signs that you should run your eye over to get a better picture of Hollister Biosciences.
This note has only looked at a single factor that sheds light on the nature of Hollister Biosciences' profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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. 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. 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.
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