Stock Analysis

Why Hampiðjan hf's (ICE:HAMP) Shaky Earnings Are Just The Beginning Of Its Problems

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The subdued market reaction suggests that Hampiðjan hf.'s (ICE:HAMP) recent earnings didn't contain any surprises. Our analysis suggests that along with soft profit numbers, investors should be aware of some other underlying weaknesses in the numbers.

See our latest analysis for Hampiðjan hf

ICSE:HAMP Earnings and Revenue History March 15th 2024

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. Hampiðjan hf expanded the number of shares on issue by 16% 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. You can see a chart of Hampiðjan hf's EPS by clicking here.

How Is Dilution Impacting Hampiðjan hf's Earnings Per Share (EPS)?

Unfortunately, Hampiðjan hf's profit is down 22% per year over three years. And even focusing only on the last twelve months, we see profit is down 17%. Sadly, earnings per share fell further, down a full 31% in that time. Therefore, the dilution is having a noteworthy influence on shareholder returns.

In the long term, if Hampiðjan hf'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 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 Hampiðjan hf.

How Do Unusual Items Influence Profit?

On top of the dilution, we should also consider the €3.3m impact of unusual items in the last year, which had the effect of suppressing profit. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect Hampiðjan hf to produce a higher profit next year, all else being equal.

Our Take On Hampiðjan hf's Profit Performance

To sum it all up, Hampiðjan hf took a hit from unusual items which pushed its profit down; without that, it would have made more money. But unfortunately the dilution means that shareholders now own a smaller proportion of the company (assuming they maintained the same number of shares). That will weigh on earnings per share, even if it is not reflected in net income. Based on these factors, it's hard to tell if Hampiðjan hf's profits are a reasonable reflection of its underlying profitability. If you'd like to know more about Hampiðjan hf as a business, it's important to be aware of any risks it's facing. For example, we've discovered 2 warning signs that you should run your eye over to get a better picture of Hampiðjan hf.

Our examination of Hampiðjan hf has focussed on certain factors that can make its earnings look better than they are. 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.

Valuation is complex, but we're helping make it simple.

Find out whether Hampiðjan hf is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.