Why BBQ Holdings' (NASDAQ:BBQ) Earnings Are Weaker Than They Seem

Despite posting strong earnings, BBQ Holdings, Inc.'s (NASDAQ:BBQ) stock didn't move much over the last week. We looked deeper into the numbers and found that shareholders might be concerned with some underlying weaknesses.

View our latest analysis for BBQ Holdings

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. BBQ Holdings expanded the number of shares on issue by 13% over the last year. As a result, its net income is now split between a greater number of shares. Per share metrics like EPS help us understand how much actual shareholders are benefitting from the company's profits, while the net income level gives us a better view of the company's absolute size. You can see a chart of BBQ Holdings' EPS by clicking here.

How Is Dilution Impacting BBQ Holdings' Earnings Per Share? (EPS)

BBQ Holdings has improved its profit over the last three years, with an annualized gain of 733% in that time. But EPS was only up 615% per year, in the exact same period. And at a glance the 213% gain in profit over the last year impresses. But in comparison, EPS only increased by 201% 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 it will certainly be a positive for shareholders if BBQ Holdings can grow EPS persistently. 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.

How Do Unusual Items Influence Profit?

Alongside that dilution, it's also important to note that BBQ Holdings' profit was boosted by unusual items worth US$16m in the last twelve months. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And that's as you'd expect, given these boosts are described as 'unusual'. BBQ Holdings had a rather significant contribution from unusual items relative to its profit to October 2021. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

Our Take On BBQ Holdings' Profit Performance

In its last report BBQ Holdings benefitted from unusual items which boosted its profit, which could make the profit seem better than it really is on a sustainable basis. On top of that, the dilution means that its earnings per share performance is worse than its profit performance. Considering all this we'd argue BBQ Holdings' profits probably give an overly generous impression of its sustainable level of profitability. If you want to do dive deeper into BBQ Holdings, you'd also look into what risks it is currently facing. Case in point: We've spotted 3 warning signs for BBQ Holdings you should be mindful of and 1 of them shouldn't be ignored.

Our examination of BBQ Holdings 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 is always more to discover if you are capable of focussing your mind on minutiae. 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 that insiders are buying.

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.

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