ITAB Shop Concept (STO:ITAB) Posted Healthy Earnings But There Are Some Other Factors To Be Aware Of

Investors were disappointed with ITAB Shop Concept AB (publ)'s (STO:ITAB) earnings, despite the strong profit numbers. We think that the market might be paying attention to some underlying factors that they find to be concerning.

See our latest analysis for ITAB Shop Concept

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. In fact, ITAB Shop Concept increased the number of shares on issue by 10% 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. You can see a chart of ITAB Shop Concept's EPS by clicking here.

How Is Dilution Impacting ITAB Shop Concept's Earnings Per Share (EPS)?

Three years ago, ITAB Shop Concept lost money. The good news is that profit was up 54% in the last twelve months. On the other hand, earnings per share are only up 54% over the same period. And so, you can see quite clearly that dilution is influencing shareholder earnings.

In the long term, earnings per share growth should beget share price growth. So it will certainly be a positive for shareholders if ITAB Shop Concept 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.

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 ITAB Shop Concept's Profit Performance

Each ITAB Shop Concept share now gets a meaningfully smaller slice of its overall profit, due to dilution of existing shareholders. Therefore, it seems possible to us that ITAB Shop Concept's true underlying earnings power is actually less than its statutory profit. The good news is that, its earnings per share increased by 54% in the last year. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. For example - ITAB Shop Concept has 3 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 ITAB Shop Concept's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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.