We Think That There Are More Issues For Rubellite Energy (TSE:RBY) Than Just Sluggish Earnings

The market rallied behind Rubellite Energy Inc.'s (TSE:RBY) stock, leading do a rise in the share price after its recent weak earnings report. Sometimes, shareholders are willing to ignore soft numbers with the hope that they will improve, but our analysis suggests this is unlikely for Rubellite Energy.

See our latest analysis for Rubellite Energy

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. Rubellite Energy expanded the number of shares on issue by 14% over the last year. 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. You can see a chart of Rubellite Energy's EPS by clicking here.

How Is Dilution Impacting Rubellite Energy's Earnings Per Share (EPS)?

We don't have any data on the company's profits from three years ago. 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 35% in the same period. And so, you can see quite clearly that dilution is influencing shareholder earnings.

If Rubellite Energy's 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 Rubellite Energy's Profit Performance

Over the last year Rubellite Energy 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 Rubellite Energy's 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. So while earnings quality is important, it's equally important to consider the risks facing Rubellite Energy at this point in time. At Simply Wall St, we found 2 warning signs for Rubellite Energy and we think they deserve your attention.

Today we've zoomed in on a single data point to better understand the nature of Rubellite Energy's profit. But there are plenty of other ways to inform your opinion of a company. 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.