Robust Earnings May Not Tell The Whole Story For MFE-MediaForEurope (BIT:MFEB)

By
Simply Wall St
Published
May 08, 2022
BIT:MFEB
Source: Shutterstock

Despite posting some strong earnings, the market for MFE-MediaForEurope N.V.'s (BIT:MFEB) stock hasn't moved much. Our analysis suggests that shareholders have noticed something concerning in the numbers.

View our latest analysis for MFE-MediaForEurope

earnings-and-revenue-history
BIT:MFEB Earnings and Revenue History May 8th 2022

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. As it happens, MFE-MediaForEurope issued 101% more new shares over the last year. That means its earnings are split among 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 MFE-MediaForEurope's historical EPS growth by clicking on this link.

A Look At The Impact Of MFE-MediaForEurope's Dilution on Its Earnings Per Share (EPS).

Three years ago, MFE-MediaForEurope lost money. On the bright side, in the last twelve months it grew profit by 169%. But EPS was less impressive, up only 168% in that time. So you can see that the dilution has had a fairly significant impact on shareholders.

In the long term, earnings per share growth should beget share price growth. So it will certainly be a positive for shareholders if MFE-MediaForEurope can grow EPS persistently. 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.

The Impact Of Unusual Items On Profit

On top of the dilution, we should also consider the €58m impact of unusual items in the last year, which had the effect of suppressing profit. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And that's hardly a surprise given these line items are considered unusual. If MFE-MediaForEurope doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Our Take On MFE-MediaForEurope's Profit Performance

To sum it all up, MFE-MediaForEurope 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, we think it's very unlikely that MFE-MediaForEurope's statutory profits make it seem much weaker than it is. If you want to do dive deeper into MFE-MediaForEurope, you'd also look into what risks it is currently facing. To that end, you should learn about the 4 warning signs we've spotted with MFE-MediaForEurope (including 2 which shouldn't be ignored).

In this article we've looked at a number of factors that can impair the utility of profit numbers, as a guide to a business. 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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