Stampede Drilling (CVE:SDI) Posted Healthy Earnings But There Are Some Other Factors To Be Aware Of

Unsurprisingly, Stampede Drilling Inc.'s (CVE:SDI) stock price was strong on the back of its healthy earnings report. However, we think that shareholders may be missing some concerning details in the numbers.

See our latest analysis for Stampede Drilling

The Impact Of Unusual Items On Profit

To properly understand Stampede Drilling's profit results, we need to consider the CA$2.5m gain attributed to unusual items. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. And that's as you'd expect, given these boosts are described as 'unusual'. We can see that Stampede Drilling's positive unusual items were quite significant relative to its profit in the year to December 2021. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Stampede Drilling.

Our Take On Stampede Drilling's Profit Performance

As we discussed above, we think the significant positive unusual item makes Stampede Drilling's earnings a poor guide to its underlying profitability. For this reason, we think that Stampede Drilling's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. On the bright side, the company showed enough improvement to book a profit this year, after losing money 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 Stampede Drilling at this point in time. While conducting our analysis, we found that Stampede Drilling has 3 warning signs and it would be unwise to ignore these.

Today we've zoomed in on a single data point to better understand the nature of Stampede Drilling's profit. But there are plenty of other ways to inform your opinion of a company. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to 'follow the money' and search out stocks that insiders are buying. 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.