Yubico's (STO:YUBICO) Sluggish Earnings Might Be Just The Beginning Of Its Problems

Following the release of a lackluster earnings report from Yubico AB (STO:YUBICO) the stock price made a strong positive move. We looked at the details, and we think that investors may be responding to some encouraging factors.

See our latest analysis for Yubico

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. Yubico expanded the number of shares on issue by 146% over the last year. 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 Yubico's EPS by clicking here.

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

Unfortunately, we don't have any visibility into its profits three years back, because we lack the data. Even looking at the last year, profit was still down 37%. Sadly, earnings per share fell further, down a full 72% in that time. So you can see that the dilution has had a fairly significant impact on shareholders.

In the long term, if Yubico'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.

How Do Unusual Items Influence Profit?

Alongside that dilution, it's also important to note that Yubico's profit suffered from unusual items, which reduced profit by kr87m in the last twelve months. 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 that's hardly a surprise given these line items are considered unusual. If Yubico 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 Yubico's Profit Performance

To sum it all up, Yubico 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. Based on these factors, we think it's very unlikely that Yubico's statutory profits make it seem much weaker than it is. If you want to do dive deeper into Yubico, you'd also look into what risks it is currently facing. Every company has risks, and we've spotted 5 warning signs for Yubico (of which 1 is concerning!) you should know about.

In this article we've looked at a number of factors that can impair the utility of profit numbers, as a guide to a business. 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. 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.