Svedbergs Group's (STO:SVED B) Sluggish Earnings Might Be Just The Beginning Of Its Problems

A lackluster earnings announcement from Svedbergs Group AB (publ) (STO:SVED B) last week didn't sink the stock price. We think that investors are worried about some weaknesses underlying the earnings.

See our latest analysis for Svedbergs Group

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. Svedbergs Group expanded the number of shares on issue by 50% over the last year. 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 Svedbergs Group's EPS by clicking here.

How Is Dilution Impacting Svedbergs Group's Earnings Per Share (EPS)?

As you can see above, Svedbergs Group has been growing its net income over the last few years, with an annualized gain of 73% over three years. But on the other hand, earnings per share actually fell by 22% per year. Net income was down 7.8% over the last twelve months. But the EPS result was even worse, with the company recording a decline of 34%. Therefore, one can observe that the dilution is having a fairly profound effect on shareholder returns.

If Svedbergs 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 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.

Our Take On Svedbergs Group's Profit Performance

Over the last year Svedbergs Group issued new shares and so, there's a noteworthy divergence between EPS and net income growth. For this reason, we think that Svedbergs Group's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. Sadly, its EPS was down over the last twelve months. 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. At Simply Wall St, we found 2 warning signs for Svedbergs Group and we think they deserve your attention.

This note has only looked at a single factor that sheds light on the nature of Svedbergs Group'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 with high insider ownership.

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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.