Topaz Energy's (TSE:TPZ) Anemic Earnings Might Be Worse Than You Think

Topaz Energy Corp.'s (TSE:TPZ) recent weak earnings report didn't cause a big stock movement. However, we believe that investors should be aware of some underlying factors which may be of concern.

View our latest analysis for Topaz Energy

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. In fact, Topaz Energy increased the number of shares on issue by 6.2% over the last twelve months by issuing new shares. Therefore, each share now receives a smaller portion of profit. 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 Topaz Energy's EPS by clicking here.

A Look At The Impact Of Topaz Energy's Dilution On Its Earnings Per Share (EPS)

As you can see above, Topaz Energy has been growing its net income over the last few years, with an annualized gain of 68% over three years. But EPS was only up 42% per year, in the exact same period. Net income was down 2.6% over the last twelve months. But the EPS result was even worse, with the company recording a decline of 4.0%. And so, you can see quite clearly that dilution is influencing shareholder earnings.

In the long term, if Topaz Energy's earnings per share can increase, then the share price should too. But on the other hand, we'd be far less excited to learn profit (but not EPS) was improving. For that reason, you could say that EPS is more important that net income in the long run, assuming the goal is to assess whether a company's share price might grow.

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 Topaz Energy's Profit Performance

Topaz Energy 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 Topaz Energy's statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 42% per annum growth in EPS for the last three. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. For example, Topaz Energy has 2 warning signs (and 1 which is concerning) we think you should know about.

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