Infrastrutture Wireless Italiane (BIT:INW) Is Growing Earnings But Are They A Good Guide?

By
Simply Wall St
Published
January 20, 2021
BIT:INW
Source: Shutterstock

It might be old fashioned, but we really like to invest in companies that make a profit, each and every year. That said, the current statutory profit is not always a good guide to a company's underlying profitability. This article will consider whether Infrastrutture Wireless Italiane's (BIT:INW) statutory profits are a good guide to its underlying earnings.

It's good to see that over the last twelve months Infrastrutture Wireless Italiane made a profit of €152.4m on revenue of €576.7m. At the risk of seeming quaint, we do like to at least examine profit, even when a stock is improving revenue and considered a 'growth stock'. One positive is that it has grown both its profit and its revenue, over the last few years.

See our latest analysis for Infrastrutture Wireless Italiane

earnings-and-revenue-history
BIT:INW Earnings and Revenue History January 21st 2021

Importantly, statutory profits are not always the best tool for understanding a company's true earnings power, so it's well worth examining profits in a little more detail. In this article we'll look at how Infrastrutture Wireless Italiane is impacting shareholders by issuing new shares. 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.

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. In fact, Infrastrutture Wireless Italiane increased the number of shares on issue by 60% over the last twelve months by issuing new shares. 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 Infrastrutture Wireless Italiane's historical EPS growth by clicking on this link.

How Is Dilution Impacting Infrastrutture Wireless Italiane's Earnings Per Share? (EPS)

As you can see above, Infrastrutture Wireless Italiane has been growing its net income over the last few years, with an annualized gain of 31% over three years. And in the last year the company managed to bump profit up by 14%. On the other hand, earnings per share are only up 14% in that time. And so, you can see quite clearly that dilution is having a rather significant impact on shareholders.

In the long term, earnings per share growth should beget share price growth. So Infrastrutture Wireless Italiane shareholders will want to see that EPS figure continue to increase. 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.

Our Take On Infrastrutture Wireless Italiane's Profit Performance

As we discussed above, Infrastrutture Wireless Italiane'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 Infrastrutture Wireless Italiane's underlying earnings power is lower than its statutory profit. Nonetheless, it's still worth noting that its earnings per share have grown at 31% over the last three years. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. For example - Infrastrutture Wireless Italiane has 2 warning signs we think you should be aware of.

This note has only looked at a single factor that sheds light on the nature of Infrastrutture Wireless Italiane's profit. 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 that insiders are buying.

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This article by Simply Wall St is general in nature. 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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