When Swedish Logistics Property AB (STO:SLP B) recently reported solid earnings, there was no sign of the share price surging. We think investors are concerned about the earnings base.
See our latest analysis for Logistics Facilities in Sweden
OM:SLP B Earnings and Revenue History October 25, 2024
One important aspect when assessing earnings quality is to examine how much a company is diluting shareholders. In fact, Swedish Logistic Property increased its number of shares outstanding by 26% in the last twelve months through new share issues. This means that the company’s profits will be distributed among more shares. Celebrating net profit by ignoring dilution is like being happy because you only have one large pizza, but ignoring the fact that the pizza can be cut into many more slices. Click this link to check Swedish Logistic Property’s past EPS growth.
What impact does dilution have on the Swedish logistics facility’s earnings per share (EPS)?
Unfortunately, Swedish Logistic Property’s profits have fallen by 36% per year over three years. The good news is that profits grew 28% in the last 12 months. On the other hand, earnings per share increased by only 9.7% over the same period. So we can see that dilution has a fairly large impact on shareholder returns.
Over the long term, changes in stock prices tend to reflect changes in earnings per share. So Swedish Logistics Real Estate shareholders will be hoping to see the EPS numbers continue to grow. But on the other hand, we wouldn’t be too excited to see that earnings (not EPS) are improving. Therefore, assuming your objective is to assess whether a company’s stock price will grow, EPS may be more important than net income in the long run.
With that in mind, you might wonder what analysts are predicting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.
Impact of abnormal items on profit
In addition to this dilution, it is also important to note that the Swedish logistics facility’s profits were boosted by SEK 388 million worth of exotic goods over the past 12 months. We like to see profits increase, but we tend to be a little more cautious when unusual items make a big contribution. After scrutinizing the numbers for thousands of publicly traded companies, we found that the boost from unusual events in one year is often not repeated the following year. Considering the name, this is not surprising. We can see that Sweden Logistics’ positive unusual items were very significant compared to its profit for the year to September 2024. As a result, we can infer that unusual items increase statutory profits to a greater extent than they otherwise would.
Our view on the earnings performance of Swedish logistics facilities
In the last report, the Swedish logistics facility benefited from unusual products to increase profits, but on a sustainable basis profits may look better than they actually are. Additionally, dilution means that earnings per share performance is worse than earnings performance. For the reasons outlined above, we believe that a cursory look at Swedish Logistics Facilities’ statutory profits may make them look better than they actually are at a fundamental level. If you want to know more about Swedish logistics real estate as a business, it is important to be aware of the risks it faces. For example, Logistics Facility in Sweden has 3 warning signs (and 1 which is a bit concerning) we think you should be aware of.
In this article, we’ve considered a number of factors that can undermine the usefulness of profit figures, but we’re being cautious. But if you can focus your attention on the details, there is always more to discover. Some consider a high return on equity to be a good sign of a high-quality business. It might require a little research on your behalf, but you might find this free collection of companies boasting high return on equity , or this list of stocks with significant insider ownership to be useful.
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This article by Simply Wall St is general in nature. We provide commentary using only unbiased methodologies, based on historical data and analyst forecasts, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.
