We Don’t Think Nordic LEVEL Group AB (publ.)'s (STO:LEVEL) Earnings Should Make Shareholders Too Comfortable

Nordic LEVEL Group AB (publ.) (STO:LEVEL) posted some decent earnings, but shareholders didn't react strongly. Our analysis has found some concerning factors which weaken the profit's foundation.

See our latest analysis for Nordic LEVEL Group AB (publ.)

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. Nordic LEVEL Group AB (publ.) expanded the number of shares on issue by 67% over the last year. That means its earnings are split among 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. Check out Nordic LEVEL Group AB (publ.)'s historical EPS growth by clicking on this link.

How Is Dilution Impacting Nordic LEVEL Group AB (publ.)'s Earnings Per Share (EPS)?

Three years ago, Nordic LEVEL Group AB (publ.) lost money. And even focusing only on the last twelve months, we don't have a meaningful growth rate because it made a loss a year ago, too. But mathematics aside, it is always good to see when a formerly unprofitable business come good (though we accept profit would have been higher if dilution had not been required). So you can see that the dilution has had a fairly significant impact on shareholders.

If Nordic LEVEL Group AB (publ.)'s EPS can grow over time then that drastically improves the chances of the share price moving in the same direction. However, if its profit increases while its earnings per share stay flat (or even fall) then shareholders might not see much benefit. 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.

The Impact Of Unusual Items On Profit

Finally, we should also consider the fact that unusual items boosted Nordic LEVEL Group AB (publ.)'s net profit by kr4.5m over the last year. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. Which is hardly surprising, given the name. We can see that Nordic LEVEL Group AB (publ.)'s positive unusual items were quite significant relative to its profit in the year to March 2024. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

Our Take On Nordic LEVEL Group AB (publ.)'s Profit Performance

To sum it all up, Nordic LEVEL Group AB (publ.) got a nice boost to profit from unusual items; without that, its statutory results would have looked worse. 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. On reflection, the above-mentioned factors give us the strong impression that Nordic LEVEL Group AB (publ.)'sunderlying earnings power is not as good as it might seem, based on the statutory profit numbers. So while earnings quality is important, it's equally important to consider the risks facing Nordic LEVEL Group AB (publ.) at this point in time. Case in point: We've spotted 4 warning signs for Nordic LEVEL Group AB (publ.) you should be mindful of and 1 of them is a bit unpleasant.

Our examination of Nordic LEVEL Group AB (publ.) has focussed on certain factors that can make its earnings look better than they are. And, on that basis, we are somewhat skeptical. 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. 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.