Weak Statutory Earnings May Not Tell The Whole Story For Peyto Exploration & Development (TSE:PEY)

The subdued market reaction suggests that Peyto Exploration & Development Corp.'s (TSE:PEY) recent earnings didn't contain any surprises. Our analysis suggests that along with soft profit numbers, investors should be aware of some other underlying weaknesses in the numbers.

See our latest analysis for Peyto Exploration & Development

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. In fact, Peyto Exploration & Development increased the number of shares on issue by 11% over the last twelve months by issuing new shares. 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. Check out Peyto Exploration & Development's historical EPS growth by clicking on this link.

How Is Dilution Impacting Peyto Exploration & Development's Earnings Per Share (EPS)?

Three years ago, Peyto Exploration & Development lost money. Even looking at the last year, profit was still down 25%. Like a sack of potatoes thrown from a delivery truck, EPS fell harder, down 29% in the same period. And so, you can see quite clearly that dilution is influencing shareholder earnings.

If Peyto Exploration & Development's EPS can grow over time then that drastically improves the chances of the share price moving in the same direction. 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 Peyto Exploration & Development's Profit Performance

Over the last year Peyto Exploration & Development issued new shares and so, there's a noteworthy divergence between EPS and net income growth. Therefore, it seems possible to us that Peyto Exploration & Development's 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. So while earnings quality is important, it's equally important to consider the risks facing Peyto Exploration & Development at this point in time. You'd be interested to know, that we found 3 warning signs for Peyto Exploration & Development and you'll want to know about these bad boys.

This note has only looked at a single factor that sheds light on the nature of Peyto Exploration & Development's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to 'follow the money' and search out stocks that insiders are buying. While it might take a little research on your behalf, you may find this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying to be useful.

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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.