Stock Analysis

Why Calfrac Well Services' (TSE:CFW) Shaky Earnings Are Just The Beginning Of Its Problems

TSX:CFW
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Calfrac Well Services Ltd.'s (TSE:CFW) recent weak earnings report didn't cause a big stock movement. We think that investors are worried about some weaknesses underlying the earnings.

Check out the opportunities and risks within the CA Energy Services industry.

earnings-and-revenue-history
TSX:CFW Earnings and Revenue History November 9th 2022

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. Calfrac Well Services expanded the number of shares on issue by 24% 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. You can see a chart of Calfrac Well Services' EPS by clicking here.

A Look At The Impact Of Calfrac Well Services' Dilution On Its Earnings Per Share (EPS)

Three years ago, Calfrac Well Services lost money. And even focusing only on the last twelve months, we see profit is down 94%. Like a sack of potatoes thrown from a delivery truck, EPS fell harder, down 96% in the same period. And so, you can see quite clearly that dilution is having a rather significant impact on shareholders.

If Calfrac Well Services' EPS can grow over time then that drastically improves the chances of the share price moving in the same direction. But on the other hand, we'd be far less excited to learn profit (but not EPS) was improving. 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 Calfrac Well Services' Profit Performance

Calfrac Well Services issued shares during the year, and that means its EPS performance lags its net income growth. Therefore, it seems possible to us that Calfrac Well Services' true underlying earnings power is actually less than its statutory profit. 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. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. Our analysis shows 4 warning signs for Calfrac Well Services (1 shouldn't be ignored!) and we strongly recommend you look at these before investing.

Today we've zoomed in on a single data point to better understand the nature of Calfrac Well Services' 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.

Valuation is complex, but we're helping make it simple.

Find out whether Calfrac Well Services is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.