ADDvise Group's (STO:ADDV A) Weak Earnings May Only Reveal A Part Of The Whole Picture

ADDvise Group AB (publ)'s (STO:ADDV A) stock showed strength, with investors undeterred by its weak earnings report. While shareholders may be willing to overlook soft profit numbers, we believe that they should also be taking into account some other factors which may be cause for concern.

See our latest analysis for ADDvise Group

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. As it happens, ADDvise Group issued 5.7% more new shares 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 ADDvise Group's EPS by clicking here.

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

As you can see above, ADDvise Group has been growing its net income over the last few years, with an annualized gain of 3,109% over three years. But EPS was only up 2,235% per year, in the exact same period. Net income was down 13% over the last twelve months. Unfortunately for shareholders, though, the earnings per share result was even worse, declining 18%. And so, you can see quite clearly that dilution is influencing shareholder earnings.

In the long term, if ADDvise Group's earnings per share can increase, then the share price should too. 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 ADDvise Group's Profit Performance

Over the last year ADDvise Group issued new shares and so, there's a noteworthy divergence between EPS and net income growth. Because of this, we think that it may be that ADDvise Group's statutory profits are better than its underlying earnings power. But on the bright side, its earnings per share have grown at an extremely impressive rate over the last three years. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. If you'd like to know more about ADDvise Group as a business, it's important to be aware of any risks it's facing. For example, we've found that ADDvise Group has 3 warning signs (1 shouldn't be ignored!) that deserve your attention before going any further with your analysis.

This note has only looked at a single factor that sheds light on the nature of ADDvise 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.