CR Energy's (ETR:CRZK) Weak Earnings May Only Reveal A Part Of The Whole Picture

CR Energy AG's (ETR:CRZK) recent weak earnings report didn't cause a big stock movement. We think that investors are worried about some weaknesses underlying the earnings.

See our latest analysis for CR Energy

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. As it happens, CR Energy issued 29% more new shares over the last year. As a result, its net income is now split between a greater number of shares. 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. You can see a chart of CR Energy's EPS by clicking here.

A Look At The Impact Of CR Energy's Dilution On Its Earnings Per Share (EPS)

As you can see above, CR Energy has been growing its net income over the last few years, with an annualized gain of 28% over three years. But on the other hand, earnings per share actually fell by 45% per year. Net income was down 13% over the last twelve months. Unfortunately for shareholders, though, the earnings per share result was even worse, declining 21%. So you can see that the dilution has had a fairly significant impact on shareholders.

If CR Energy's EPS can grow over time then that drastically improves the chances of the share price moving in the same direction. However, if its profit increases while its earnings per share stay flat (or even fall) then shareholders might not see much benefit. 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 CR Energy's Profit Performance

CR Energy issued shares during the year, and that means its EPS performance lags its net income growth. Therefore, it seems possible to us that CR Energy's true underlying earnings power is actually less than its statutory profit. In further bad news, its earnings per share decreased in the 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Case in point: We've spotted 2 warning signs for CR Energy you should be aware of.

This note has only looked at a single factor that sheds light on the nature of CR Energy's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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.