Sartorius Stedim Biotech's (EPA:DIM) Weak Earnings May Only Reveal A Part Of The Whole Picture

The market rallied behind Sartorius Stedim Biotech S.A.'s (EPA:DIM) stock, leading do a rise in the share price after its recent weak earnings report. While shareholders may be willing to overlook soft profit numbers, we believe that they should also be taking into account some other factors which may be cause for concern.

Check out our latest analysis for Sartorius Stedim Biotech

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. Sartorius Stedim Biotech expanded the number of shares on issue by 5.6% 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 Sartorius Stedim Biotech's historical EPS growth by clicking on this link.

A Look At The Impact Of Sartorius Stedim Biotech's Dilution On Its Earnings Per Share (EPS)

Unfortunately, Sartorius Stedim Biotech's profit is down 69% per year over three years. And even focusing only on the last twelve months, we see profit is down 65%. Like a sack of potatoes thrown from a delivery truck, EPS fell harder, down 66% in the same period. Therefore, the dilution is having a noteworthy influence on shareholder returns.

In the long term, if Sartorius Stedim Biotech's earnings per share can increase, then the share price should too. 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.

How Do Unusual Items Influence Profit?

Alongside that dilution, it's also important to note that Sartorius Stedim Biotech's profit was boosted by unusual items worth €60m in the last twelve months. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. 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 items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

Our Take On Sartorius Stedim Biotech's Profit Performance

To sum it all up, Sartorius Stedim Biotech got a nice boost to profit from unusual items; without that, its statutory results would have looked worse. On top of that, the dilution means that its earnings per share performance is worse than its profit performance. Considering all this we'd argue Sartorius Stedim Biotech's profits probably give an overly generous impression of its sustainable level of profitability. If you want to do dive deeper into Sartorius Stedim Biotech, you'd also look into what risks it is currently facing. Case in point: We've spotted 5 warning signs for Sartorius Stedim Biotech you should be mindful of and 1 of them makes us a bit uncomfortable.

In this article we've looked at a number of factors that can impair the utility of profit numbers, and we've come away cautious. 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. 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.