Comstock Resources, Inc.'s (NYSE:CRK) recent weak earnings report didn't cause a big stock movement. Our analysis suggests that along with soft profit numbers, investors should be aware of some other underlying weaknesses in the numbers.
To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. In fact, Comstock Resources increased the number of shares on issue by 5.3% over the last twelve months by issuing new shares. That means its earnings are split among 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. Check out Comstock Resources' historical EPS growth by clicking on this link.
A Look At The Impact Of Comstock Resources' Dilution On Its Earnings Per Share (EPS)
Comstock Resources was losing money three years ago. Even looking at the last year, profit was still down 96%. Sadly, earnings per share fell further, down a full 96% in that time. And so, you can see quite clearly that dilution is influencing shareholder earnings.
In the long term, if Comstock Resources' 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.
Our Take On Comstock Resources' Profit Performance
Over the last year Comstock Resources issued new shares and so, there's a noteworthy divergence between EPS and net income growth. Because of this, we think that it may be that Comstock Resources' statutory profits are better than its underlying earnings power. In further bad news, its earnings per share decreased in the last year. 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Our analysis shows 3 warning signs for Comstock Resources (1 makes us a bit uncomfortable!) and we strongly recommend you look at these before investing.
This note has only looked at a single factor that sheds light on the nature of Comstock Resources' profit. 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.
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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.