Matica Fintec's (BIT:MFT) Shareholders Have More To Worry About Than Only Soft Earnings

The market wasn't impressed with the soft earnings from Matica Fintec S.p.A. (BIT:MFT) recently. We did some further digging and think they have a few more reasons to be concerned beyond the statutory profit.

Check out our latest analysis for Matica Fintec

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. In fact, Matica Fintec increased the number of shares on issue by 7.6% over the last twelve months by issuing new shares. 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 Matica Fintec's EPS by clicking here.

How Is Dilution Impacting Matica Fintec's Earnings Per Share (EPS)?

As you can see above, Matica Fintec has been growing its net income over the last few years, with an annualized gain of 4,256% over three years. In comparison, earnings per share only gained 4,084% over the same period. Net profit actually dropped by 15% in the last year. Unfortunately for shareholders, though, the earnings per share result was even worse, declining 18%. So you can see that the dilution has had a bit of an impact on shareholders.

In the long term, if Matica Fintec's earnings per share can increase, then the share price should too. But on the other hand, we'd be far less excited to learn profit (but not EPS) was improving. 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

Alongside that dilution, it's also important to note that Matica Fintec's profit was boosted by unusual items worth €244k in the last twelve months. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And that's as you'd expect, given these boosts are described as 'unusual'. 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 Matica Fintec's Profit Performance

To sum it all up, Matica Fintec got a nice boost to profit from unusual items; without that, its statutory results would have looked worse. And furthermore, it went and issued plenty of new shares, ensuring that each shareholder (who did not tip more money in) now owns a smaller proportion of the company. Considering all this we'd argue Matica Fintec's profits probably give an overly generous impression of its sustainable level of profitability. If you'd like to know more about Matica Fintec as a business, it's important to be aware of any risks it's facing. At Simply Wall St, we found 2 warning signs for Matica Fintec and we think they deserve your attention.

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. 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.