Earnings Troubles May Signal Larger Issues for ConocoPhillips (NYSE:COP) Shareholders

A lackluster earnings announcement from ConocoPhillips (NYSE:COP) last week didn't sink the stock price. However, we believe that investors should be aware of some underlying factors which may be of concern.

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One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. In fact, ConocoPhillips increased the number of shares on issue by 7.4% over the last twelve months by issuing new shares. That means its earnings are split among a greater number of shares. Per share metrics like EPS help us understand how much actual shareholders are benefitting from the company's profits, while the net income level gives us a better view of the company's absolute size. You can see a chart of ConocoPhillips' EPS by clicking here.

How Is Dilution Impacting ConocoPhillips' Earnings Per Share (EPS)?

ConocoPhillips' net profit dropped by 51% per year over the last three years. Even looking at the last year, profit was still down 11%. Like a sack of potatoes thrown from a delivery truck, EPS fell harder, down 16% in the same period. And so, you can see quite clearly that dilution is influencing shareholder earnings.

If ConocoPhillips' EPS can grow over time then that drastically improves the chances of the share price moving in the same direction. 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.

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 ConocoPhillips' Profit Performance

ConocoPhillips issued shares during the year, and that means its EPS performance lags its net income growth. Therefore, it seems possible to us that ConocoPhillips' true underlying earnings power is actually less than its statutory profit. Sadly, its EPS was down over the last twelve months. 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. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. You'd be interested to know, that we found 1 warning sign for ConocoPhillips and you'll want to know about this.

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