Tourmaline Oil's (TSE:TOU) Profits Appear To Have Quality Issues

The recent earnings posted by Tourmaline Oil Corp. (TSE:TOU) were solid, but the stock didn't move as much as we expected. However the statutory profit number doesn't tell the whole story, and we have found some factors which might be of concern to shareholders.

View our latest analysis for Tourmaline Oil

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. As it happens, Tourmaline Oil issued 9.0% more new shares over the last year. That means its earnings are split among a greater number of shares. To talk about net income, without noticing earnings per share, is to be distracted by the big numbers while ignoring the smaller numbers that talk to per share value. Check out Tourmaline Oil's historical EPS growth by clicking on this link.

How Is Dilution Impacting Tourmaline Oil's Earnings Per Share (EPS)?

Tourmaline Oil's net profit dropped by 6.2% per year over the last three years. On the bright side, in the last twelve months it grew profit by 55%. On the other hand, earnings per share are only up 50% over the same period. And so, you can see quite clearly that dilution is influencing shareholder earnings.

Changes in the share price do tend to reflect changes in earnings per share, in the long run. So it will certainly be a positive for shareholders if Tourmaline Oil can grow EPS persistently. 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 Tourmaline Oil's Profit Performance

Each Tourmaline Oil share now gets a meaningfully smaller slice of its overall profit, due to dilution of existing shareholders. Therefore, it seems possible to us that Tourmaline Oil's true underlying earnings power is actually less than its statutory profit. The good news is that, its earnings per share increased by 50% in the last year. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. So while earnings quality is important, it's equally important to consider the risks facing Tourmaline Oil at this point in time. For example - Tourmaline Oil has 3 warning signs we think you should be aware of.

This note has only looked at a single factor that sheds light on the nature of Tourmaline Oil'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. 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 with significant insider holdings 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.