Weak Statutory Earnings May Not Tell The Whole Story For ConocoPhillips (NYSE:COP)

ConocoPhillips' (NYSE:COP) recent weak earnings report didn't cause a big stock movement. Our analysis suggests that along with soft profit numbers, investors should be aware of some other underlying weaknesses in the numbers.

View our latest analysis for ConocoPhillips

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 8.2% over the last twelve months by issuing new shares. As a result, its net income is now split between 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. Check out ConocoPhillips' historical EPS growth by clicking on this link.

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

As you can see above, ConocoPhillips has been growing its net income over the last few years, with an annualized gain of 14% over three years. Net profit actually dropped by 16% in the last year. But the EPS result was even worse, with the company recording a decline of 14%. And so, you can see quite clearly that dilution is influencing shareholder earnings.

In the long term, if ConocoPhillips' 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 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. But at least holders can take some solace from the 28% per annum growth in EPS for the last three. 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. 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. In terms of investment risks, we've identified 1 warning sign with ConocoPhillips, and understanding it should be part of your investment process.

Today we've zoomed in on a single data point to better understand 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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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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.