Despite ConocoPhillips' (NYSE:COP) recent earnings report having lackluster headline numbers, the market responded positively. While shareholders may be willing to overlook soft profit numbers, we believe that they should also be taking into account some other factors which may be cause for concern.
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To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. In fact, ConocoPhillips increased the number of shares on issue by 7.9% 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. You can see a chart of ConocoPhillips' EPS by clicking here.
A Look At The Impact Of ConocoPhillips' Dilution On Its Earnings Per Share (EPS)
ConocoPhillips' net profit dropped by 26% per year over the last three years. Even looking at the last year, profit was still down 9.8%. Sadly, earnings per share fell further, down a full 11% in that time. So you can see that the dilution has had a bit of an impact on shareholders.
In the long term, if ConocoPhillips' 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 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.
Our Take On ConocoPhillips' Profit Performance
ConocoPhillips issued shares during the year, and that means its EPS performance lags its net income growth. Because of this, we think that it may be that ConocoPhillips' statutory profits are better than its underlying earnings power. Sadly, its EPS was down over the last twelve months. 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. In terms of investment risks, we've identified 1 warning sign with ConocoPhillips, and understanding this should be part of your investment process.
Today we've zoomed in on a single data point to better understand the nature of ConocoPhillips' 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 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.
