Chord Energy's (NASDAQ:CHRD) Solid Earnings May Rest On Weak Foundations

Chord Energy Corporation's (NASDAQ:CHRD) healthy profit numbers didn't contain any surprises for investors. However the statutory profit number doesn't tell the whole story, and we have found some factors which might be of concern to shareholders.

Our analysis indicates that CHRD is potentially undervalued!

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. As it happens, Chord Energy issued 111% more new shares over the last year. That means its earnings are split among 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 Chord Energy's EPS by clicking here.

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

Unfortunately, we don't have any visibility into its profits three years back, because we lack the data. The good news is that profit was up 135% in the last twelve months. On the other hand, earnings per share are only up 469% over the same period. Therefore, one can observe that the dilution is having a fairly profound effect on shareholder returns.

In the long term, earnings per share growth should beget share price growth. So it will certainly be a positive for shareholders if Chord Energy can grow EPS persistently. 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 Chord Energy's Profit Performance

As we discussed above, Chord Energy's dilution over the last year has a major impact on its per-share earnings. As a result, we think it may well be the case that Chord Energy's underlying earnings power is lower than its statutory profit. The silver lining is that its EPS growth over the last year has been really wonderful, even if it's not a perfect measure. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. If you want to do dive deeper into Chord Energy, you'd also look into what risks it is currently facing. When we did our research, we found 3 warning signs for Chord Energy (2 don't sit too well with us!) that we believe deserve your full attention.

This note has only looked at a single factor that sheds light on the nature of Chord Energy'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. 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.