Fastighetsbolaget Emilshus' (STO:EMIL B) Earnings Are Of Questionable Quality

Fastighetsbolaget Emilshus AB (publ)'s (STO:EMIL B) robust earnings report didn't manage to move the market for its stock. Our analysis suggests that shareholders have noticed something concerning in the numbers.

Check out our latest analysis for Fastighetsbolaget Emilshus

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. In fact, Fastighetsbolaget Emilshus increased the number of shares on issue by 19% over the last twelve months by issuing new shares. 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 Fastighetsbolaget Emilshus' EPS by clicking here.

How Is Dilution Impacting Fastighetsbolaget Emilshus' Earnings Per Share (EPS)?

Unfortunately, Fastighetsbolaget Emilshus' profit is down 72% per year over three years. On the bright side, in the last twelve months it grew profit by 251%. On the other hand, earnings per share are only up 220% over the same period. Therefore, the dilution is having a noteworthy influence on shareholder returns.

Changes in the share price do tend to reflect changes in earnings per share, in the long run. So Fastighetsbolaget Emilshus shareholders will want to see that EPS figure continue to increase. But on the other hand, we'd be far less excited to learn profit (but not EPS) was improving. For the ordinary retail shareholder, EPS is a great measure to check your hypothetical "share" of the company's profit.

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?

Finally, we should also consider the fact that unusual items boosted Fastighetsbolaget Emilshus' net profit by kr53m over the last year. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. And that's as you'd expect, given these boosts are described as 'unusual'. If Fastighetsbolaget Emilshus doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Our Take On Fastighetsbolaget Emilshus' Profit Performance

In its last report Fastighetsbolaget Emilshus benefitted from unusual items which boosted its profit, which could make the profit seem better than it really is on a sustainable basis. And furthermore, it went and issued plenty of new shares, ensuring that each shareholder (who did not tip more money in) now owns a smaller proportion of the company. Considering all this we'd argue Fastighetsbolaget Emilshus' profits probably give an overly generous impression of its sustainable level of profitability. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. Every company has risks, and we've spotted 3 warning signs for Fastighetsbolaget Emilshus (of which 1 is significant!) you should know about.

In this article we've looked at a number of factors that can impair the utility of profit numbers, and we've come away cautious. 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.