Statutory Earnings May Not Be The Best Way To Understand Baltic Sea Properties' (OB:BALT) True Position

Despite posting strong earnings, Baltic Sea Properties AS' (OB:BALT) stock didn't move much over the last week. We decided to have a deeper look, and we believe that investors might be worried about several concerning factors that we found.

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In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. As it happens, Baltic Sea Properties issued 30% more new shares over the last year. That means its earnings are split among 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 Baltic Sea Properties' EPS by clicking here.

A Look At The Impact Of Baltic Sea Properties' Dilution On Its Earnings Per Share (EPS)

Unfortunately, Baltic Sea Properties' profit is down 32% per year over three years. The good news is that profit was up 91% in the last twelve months. But EPS was less impressive, up only 47% 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 Baltic Sea Properties can grow EPS persistently. 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.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Baltic Sea Properties.

The Impact Of Unusual Items On Profit

Alongside that dilution, it's also important to note that Baltic Sea Properties' profit was boosted by unusual items worth kr41m in the last twelve months. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. 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, after all, that's exactly what the accounting terminology implies. Baltic Sea Properties had a rather significant contribution from unusual items relative to its profit to December 2024. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

Our Take On Baltic Sea Properties' Profit Performance

In its last report Baltic Sea Properties benefitted from unusual items which boosted its profit, which could make the profit seem better than it really is on a sustainable basis. 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. For the reasons mentioned above, we think that a perfunctory glance at Baltic Sea Properties' statutory profits might make it look better than it really is on an underlying level. If you want to do dive deeper into Baltic Sea Properties, you'd also look into what risks it is currently facing. Be aware that Baltic Sea Properties is showing 4 warning signs in our investment analysis and 2 of those don't sit too well with us...

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. 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. While it might take a little research on your behalf, you may find this free collection of companies boasting high return on equity, or this list of stocks with significant insider holdings to be useful.

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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.