Investors Shouldn't Be Too Comfortable With Yangarra Resources' (TSE:YGR) Robust Earnings

Despite posting some strong earnings, the market for Yangarra Resources Ltd.'s (TSE:YGR) stock hasn't moved much. Our analysis suggests that shareholders have noticed something concerning in the numbers.

Check out our latest analysis for Yangarra Resources

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. Yangarra Resources expanded the number of shares on issue by 9.1% over the last year. Therefore, each share now receives a smaller portion of profit. 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 Yangarra Resources' historical EPS growth by clicking on this link.

How Is Dilution Impacting Yangarra Resources' Earnings Per Share (EPS)?

As you can see above, Yangarra Resources has been growing its net income over the last few years, with an annualized gain of 185% over three years. And at a glance the 55% gain in profit over the last year impresses. But in comparison, EPS only increased by 52% over the same period. So you can see that the dilution has had a bit of an impact on shareholders.

In the long term, earnings per share growth should beget share price growth. So Yangarra Resources shareholders will want to see that EPS figure continue to increase. 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 Yangarra Resources' Profit Performance

Yangarra Resources shareholders should keep in mind how many new shares it is issuing, because, dilution clearly has the power to severely impact shareholder returns. Because of this, we think that it may be that Yangarra Resources' statutory profits are better than its underlying earnings power. But on the bright side, its earnings per share have grown at an extremely impressive rate over the last three years. 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. If you want to do dive deeper into Yangarra Resources, you'd also look into what risks it is currently facing. In terms of investment risks, we've identified 1 warning sign with Yangarra Resources, and understanding this should be part of your investment process.

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