Nexi's (BIT:NEXI) Promising Earnings May Rest On Soft Foundations

Nexi S.p.A. (BIT:NEXI) announced strong profits, but the stock was stagnant. We did some digging, and we found some concerning factors in the details.

Check out our latest analysis for Nexi

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. Nexi expanded the number of shares on issue by 66% over the last year. As a result, its net income is now split between a greater number of shares. 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 Nexi's EPS by clicking here.

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

As you can see above, Nexi has been growing its net income over the last few years, with an annualized gain of 149% over three years. In comparison, earnings per share only gained over the same period. And the 39% profit boost in the last year certainly seems impressive at first glance. On the other hand, earnings per share are only up 41% in that time. And so, you can see quite clearly that dilution is having a rather significant impact on shareholders.

Changes in the share price do tend to reflect changes in earnings per share, in the long run. So it will certainly be a positive for shareholders if Nexi 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.

Our Take On Nexi's Profit Performance

As we discussed above, Nexi's dilution over the last year has a major impact on its per-share earnings. As a result, we think it may well be the case that Nexi's underlying earnings power is lower than its statutory profit. The good news is that, its earnings per share increased by 41% in the last year. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. If you'd like to know more about Nexi 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 Nexi.

This note has only looked at a single factor that sheds light on the nature of Nexi's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. Some people consider a high return on equity to be a good sign of a quality business. 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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