Are PetroTal's (CVE:TAL) Statutory Earnings A Good Reflection Of Its Earnings Potential?

By
Simply Wall St
Published
December 30, 2020

Broadly speaking, profitable businesses are less risky than unprofitable ones. Having said that, sometimes statutory profit levels are not a good guide to ongoing profitability, because some short term one-off factor has impacted profit levels. This article will consider whether PetroTal's (CVE:TAL) statutory profits are a good guide to its underlying earnings.

It's good to see that over the last twelve months PetroTal made a profit of US$6.03m on revenue of US$87.3m. The chart below shows that while revenue is flat over the last three years, the company has moved from unprofitable to profitable.

See our latest analysis for PetroTal

TSXV:TAL Earnings and Revenue History December 30th 2020

Of course, it is only sensible to look beyond the statutory profits and question how well those numbers represent the sustainable earnings power of the business. In this article we'll look at how PetroTal is impacting shareholders by issuing new shares. 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.

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. In fact, PetroTal increased the number of shares on issue by 21% over the last twelve months by issuing new shares. That means its earnings are split among a greater number of shares. 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. Check out PetroTal's historical EPS growth by clicking on this link.

A Look At The Impact Of PetroTal's Dilution on Its Earnings Per Share (EPS).

Three years ago, PetroTal lost money. And even focusing only on the last twelve months, we don't have a meaningful growth rate because it made a loss a year ago, too. What we do know is that while it's great to see a profit over the last twelve months, that profit would have been better, on a per share basis, if the company hadn't needed to issue shares. So you can see that the dilution has had a bit of an impact on shareholders. Therefore, the dilution is having a noteworthy influence on shareholder returns. And so, you can see quite clearly that dilution is influencing shareholder earnings.

In the long term, if PetroTal'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 the ordinary retail shareholder, EPS is a great measure to check your hypothetical "share" of the company's profit.

Our Take On PetroTal's Profit Performance

Over the last year PetroTal issued new shares and so, there's a noteworthy divergence between EPS and net income growth. Because of this, we think that it may be that PetroTal's statutory profits are better than its underlying earnings power. The good news is that it earned a profit in the last twelve months, despite its previous loss. 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. If you want to do dive deeper into PetroTal, you'd also look into what risks it is currently facing. For example - PetroTal has 2 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 PetroTal'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 that insiders are buying to be useful.

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This article by Simply Wall St is general in nature. 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.
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