Orezone Gold's (TSE:ORE) Shareholders Have More To Worry About Than Only Soft Earnings

A lackluster earnings announcement from Orezone Gold Corporation (TSE:ORE) last week didn't sink the stock price. We think that investors are worried about some weaknesses underlying the earnings.

Check out our latest analysis for Orezone Gold

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. In fact, Orezone Gold increased the number of shares on issue by 29% 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 Orezone Gold's historical EPS growth by clicking on this link.

How Is Dilution Impacting Orezone Gold's Earnings Per Share (EPS)?

Three years ago, Orezone Gold lost money. Even looking at the last year, profit was still down 31%. Like a sack of potatoes thrown from a delivery truck, EPS fell harder, down 36% in the same period. And so, you can see quite clearly that dilution is having a rather significant impact on shareholders.

In the long term, if Orezone Gold'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 Orezone Gold's Profit Performance

Over the last year Orezone Gold 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 Orezone Gold's statutory profits are better than its underlying earnings power. In further bad news, its earnings per share decreased in the last year. 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. While conducting our analysis, we found that Orezone Gold has 2 warning signs and it would be unwise to ignore these bad boys.

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