BioGaia's (STO:BIOG B) Soft Earnings Don't Show The Whole Picture

Shareholders appeared unconcerned with BioGaia AB (publ)'s (STO:BIOG B) lackluster earnings report last week. We did some digging, and we believe the earnings are stronger than they seem.

See our latest analysis for BioGaia

The Impact Of Unusual Items On Profit

For anyone who wants to understand BioGaia's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by kr53m due to unusual items. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And, after all, that's exactly what the accounting terminology implies. If BioGaia doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

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 BioGaia's Profit Performance

Because unusual items detracted from BioGaia's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Based on this observation, we consider it likely that BioGaia's statutory profit actually understates its earnings potential! And on top of that, its earnings per share have grown at 69% per year over the last three years. 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. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. Every company has risks, and we've spotted 2 warning signs for BioGaia you should know about.

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