We Think You Can Look Beyond Better Collective's (STO:BETCO) Lackluster Earnings

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.

View 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 18% over the last year. That means its earnings are split among a greater number of shares. 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. Check out Better Collective's historical EPS growth by clicking on this link.

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 216% in that time. But EPS was only up 105% per year, in the exact same period. Net profit actually dropped by 11% in the last year. Unfortunately for shareholders, though, the earnings per share result was even worse, declining 16%. So you can see that the dilution has had a bit of an impact on shareholders.

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.

The Impact Of Unusual Items On Profit

On top of the dilution, we should also consider the €17m 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, after all, that's exactly what the accounting terminology implies. If Better Collective doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Our Take On Better Collective's Profit Performance

To sum it all up, Better Collective took a hit from unusual items which pushed its profit down; without that, it would have made more money. 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. After taking into account all these factors, we think that Better Collective's statutory results are a decent reflection of its underlying earnings power. If you want to do dive deeper into Better Collective, you'd also look into what risks it is currently facing. While conducting our analysis, we found that Better Collective has 3 warning signs and it would be unwise to ignore them.

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. Some people consider a high return on equity to be a good sign of a quality business. 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 that insiders are buying to be useful.

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.

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