We Think Azerion Group's (AMS:AZRN) Profit Is Only A Baseline For What They Can Achieve

Investors were underwhelmed by the solid earnings posted by Azerion Group N.V. ( AMS:AZRN ) recently. Our analysis says that investors should be optimistic, as the strong profit is built on solid foundations.

View our latest analysis for Azerion Group

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. In fact, Azerion Group greatly decreased the number of shares on issue by 58,690,961 after they completed a cancellation of shares held in treasury. Therefore, each share now receives a larger portion of profit. 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. You can see a chart of Azerion Group's EPS by clicking here .

A Look At The Impact Of Azerion Group's Dilution On Its Earnings Per Share (EPS)

Three years ago, Azerion Group lost money. And even focusing only on the last twelve months, we don't have a meaningful growth rate because it made a loss a year ago, too. What we do know is that while it's great to see a profit over the last twelve months, that profit is now even better, on a per share basis, thanks to a reduction in the amount of shares outstanding. Therefore, the anti-dilutive measures are having a noteworthy influence on shareholder returns.

If Azerion Group's EPS can grow over time then that drastically improves the chances of the share price moving in the same direction. But on the other hand, we'd be far less excited to learn profit (but not EPS) was improving. 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.

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

We should also consider the €113m 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, after all, that's exactly what the accounting terminology implies. Azerion Group took a rather significant hit from unusual items in the year to September 2023. All else being equal, this would likely have the effect of making the statutory profit look worse than its underlying earnings power.

Our Take On Azerion Group's Profit Performance

Azerion Group suffered from unusual items which depressed its profit in its last report; if that is not repeated then profit should be higher, all else being equal. But on the other hand, the company reduced the number of shares outstanding, so without buying more shares each shareholder will end up with a larger part of the profit. Based on these factors, we think that Azerion Group's profits are a reasonably conservative guide to its underlying profitability. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Our analysis shows  5 warning signs for Azerion Group (2 are concerning!) and we strongly recommend you look at them before investing.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.