Why Whitecap Resources' (TSE:WCP) Shaky Earnings Are Just The Beginning Of Its Problems

A lackluster earnings announcement from Whitecap Resources Inc. (TSE:WCP) last week didn't sink the stock price. However, we believe that investors should be aware of some underlying factors which may be of concern.

See our latest analysis for Whitecap Resources

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Whitecap Resources' profit received a boost of CA$244m in unusual items, over the last year. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And, after all, that's exactly what the accounting terminology implies. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

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 Whitecap Resources' Profit Performance

Arguably, Whitecap Resources' statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Whitecap Resources' statutory profits are better than its underlying earnings power. In further bad news, its earnings per share decreased 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. If you'd like to know more about Whitecap Resources as a business, it's important to be aware of any risks it's facing. Every company has risks, and we've spotted 2 warning signs for Whitecap Resources (of which 1 is concerning!) you should know about.

This note has only looked at a single factor that sheds light on the nature of Whitecap Resources' 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.