Impressive Earnings May Not Tell The Whole Story For Vertiseit (STO:VERT B)

Unsurprisingly, Vertiseit AB (publ)'s (STO:VERT B) stock price was strong on the back of its healthy earnings report. We did some analysis and think that investors are missing some details hidden beneath the profit numbers.

See our latest analysis for Vertiseit

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. In fact, Vertiseit increased the number of shares on issue by 39% over the last twelve months by issuing new shares. As a result, its net income is now split between 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. You can see a chart of Vertiseit's EPS by clicking here.

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

As you can see above, Vertiseit has been growing its net income over the last few years, with an annualized gain of 1,576% over three years. But EPS was only up 961% per year, in the exact same period. And at a glance the 247% gain in profit over the last year impresses. But in comparison, EPS only increased by 207% over the same period. So you can see that the dilution has had a fairly significant impact on shareholders.

In the long term, earnings per share growth should beget share price growth. So Vertiseit 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 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 Vertiseit's Profit Performance

As we discussed above, Vertiseit's dilution over the last year has a major impact on its per-share earnings. As a result, we think it may well be the case that Vertiseit's underlying earnings power is lower than its statutory profit. But the good news is that its EPS growth over the last three years has been very impressive. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. So while earnings quality is important, it's equally important to consider the risks facing Vertiseit at this point in time. At Simply Wall St, we found 1 warning sign for Vertiseit and we think they deserve your attention.

Today we've zoomed in on a single data point to better understand the nature of Vertiseit's profit. But there are plenty of other ways to inform your opinion of a company. Some people consider a high return on equity to be a good sign of a quality business. 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.