Weak Statutory Earnings May Not Tell The Whole Story For Biotage (STO:BIOT)

The market rallied behind Biotage AB (publ)'s (STO:BIOT) 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.

View our latest analysis for Biotage

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. Biotage expanded the number of shares on issue by 22% over the last year. As a result, its net income is now split between a greater number of shares. 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 Biotage's EPS by clicking here.

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

As you can see above, Biotage has been growing its net income over the last few years, with an annualized gain of 41% over three years. In comparison, earnings per share only gained 24% over the same period. Net profit actually dropped by 8.2% in the last year. But the EPS result was even worse, with the company recording a decline of 18%. So you can see that the dilution has had a bit of an impact on shareholders.

In the long term, if Biotage'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 Biotage's Profit Performance

Biotage issued shares during the year, and that means its EPS performance lags its net income growth. Therefore, it seems possible to us that Biotage's true underlying earnings power is actually less than its statutory profit. Nonetheless, it's still worth noting that its earnings per share have grown at 24% 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. Case in point: We've spotted 1 warning sign for Biotage you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Biotage's profit. 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 that insiders are buying.

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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.