Better Collective's (STO:BETCO) Soft Earnings Don't Show The Whole Picture

Soft earnings didn't appear to concern Better Collective A/S' (STO:BETCO) shareholders over the last week. We think that the softer headline numbers might be getting counterbalanced by some positive underlying factors.

See our latest analysis for Better Collective

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. Better Collective expanded the number of shares on issue by 8.5% over the last year. Therefore, each share now receives a smaller portion of profit. To talk about net income, without noticing earnings per share, is to be distracted by the big numbers while ignoring the smaller numbers that talk to per share value. You can see a chart of Better Collective's EPS by clicking here.

A Look At The Impact Of Better Collective's Dilution On Its Earnings Per Share (EPS)

Better Collective has improved its profit over the last three years, with an annualized gain of 97% in that time. But EPS was only up 61% per year, in the exact same period. Net profit actually dropped by 15% in the last year. Unfortunately for shareholders, though, the earnings per share result was even worse, declining 24%. Therefore, the dilution is having a noteworthy influence on shareholder returns.

If Better Collective'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 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.

How Do Unusual Items Influence Profit?

On top of the dilution, we should also consider the €15m impact of unusual items in the last year, which had the effect of suppressing profit. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's hardly a surprise given these line items are considered unusual. Assuming those unusual expenses don't come up again, we'd therefore expect Better Collective to produce a higher profit next year, all else being equal.

Our Take On Better Collective's Profit Performance

Better Collective 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 unfortunately the dilution means that shareholders now own a smaller proportion of the company (assuming they maintained the same number of shares). That will weigh on earnings per share, even if it is not reflected in net income. Based on these factors, it's hard to tell if Better Collective's profits are a reasonable reflection of its underlying profitability. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. For example, we've found that Better Collective has 2 warning signs (1 doesn't sit too well with us!) that deserve your attention before going any further with your analysis.

Our examination of Better Collective has focussed on certain factors that can make its earnings look better than they are. 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. 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.