ITAB Shop Concept's (STO:ITAB) Weak Earnings May Only Reveal A Part Of The Whole Picture

The market rallied behind ITAB Shop Concept AB (publ)'s (STO:ITAB) stock, leading do a rise in the share price after its recent weak earnings report. We think that shareholders might be missing some concerning factors that our analysis found.

We've discovered 3 warning signs about ITAB Shop Concept. View them for free.

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. In fact, ITAB Shop Concept increased the number of shares on issue by 18% over the last twelve months by issuing new shares. Therefore, each share now receives a smaller portion of profit. 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 ITAB Shop Concept's historical EPS growth by clicking on this link.

A Look At The Impact Of ITAB Shop Concept's Dilution On Its Earnings Per Share (EPS)

As you can see above, ITAB Shop Concept has been growing its net income over the last few years, with an annualized gain of 182% over three years. But EPS was only up 155% per year, in the exact same period. Net income was down 27% over the last twelve months. But the EPS result was even worse, with the company recording a decline of 33%. So you can see that the dilution has had a bit of an impact on shareholders.

In the long term, if ITAB Shop Concept's earnings per share can increase, then the share price should too. 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.

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

Over the last year ITAB Shop Concept issued new shares and so, there's a noteworthy divergence between EPS and net income growth. Therefore, it seems possible to us that ITAB Shop Concept's true underlying earnings power is actually less than its statutory profit. But the good news is that its EPS growth over the last three years has been very impressive. 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. For example, ITAB Shop Concept has 3 warning signs (and 1 which is a bit concerning) we think you should know about.

Today we've zoomed in on a single data point to better understand the nature of ITAB Shop Concept'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. 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.