Impressive Earnings May Not Tell The Whole Story For Hub.Tech (WSE:HUB)

Hub.Tech SA (WSE:HUB) just reported some strong earnings, and the market reacted accordingly with a healthy uplift in the share price. However, our analysis suggests that shareholders may be missing some factors that indicate the earnings result was not as good as it looked.

See our latest analysis for Hub.Tech

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. In fact, Hub.Tech increased the number of shares on issue by 43% over the last twelve months by issuing new shares. That means its earnings are split among a greater number of shares. Per share metrics like EPS help us understand how much actual shareholders are benefitting from the company's profits, while the net income level gives us a better view of the company's absolute size. Check out Hub.Tech's historical EPS growth by clicking on this link.

How Is Dilution Impacting Hub.Tech's Earnings Per Share (EPS)?

As you can see above, Hub.Tech has been growing its net income over the last few years, with an annualized gain of 78% over three years. And the 146% profit boost in the last year certainly seems impressive at first glance. But in comparison, EPS only increased by 123% over the same period. 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 Hub.Tech shareholders will want to see that EPS figure continue to increase. However, if its profit increases while its earnings per share stay flat (or even fall) then shareholders might not see much benefit. 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 Hub.Tech.

How Do Unusual Items Influence Profit?

Alongside that dilution, it's also important to note that Hub.Tech's profit suffered from unusual items, which reduced profit by zł5.0m in the last twelve months. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that's exactly what the accounting terminology implies. If Hub.Tech doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Our Take On Hub.Tech's Profit Performance

Hub.Tech 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 issued more shares, so without buying more shares each shareholder will end up with a smaller part of the profit. Based on these factors, we think it's very unlikely that Hub.Tech's statutory profits make it seem much weaker than it is. If you'd like to know more about Hub.Tech as a business, it's important to be aware of any risks it's facing. You'd be interested to know, that we found 2 warning signs for Hub.Tech and you'll want to know about these.

In this article we've looked at a number of factors that can impair the utility of profit numbers, as a guide to a business. 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. 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.