Kinetik Holdings (NYSE:KNTK) Posted Healthy Earnings But There Are Some Other Factors To Be Aware Of

Kinetik Holdings Inc. (NYSE:KNTK) just reported some strong earnings, and the market reacted accordingly with a healthy uplift in the share price. However, our analysis suggests that shareholders may be missing some factors that indicate the earnings result was not as good as it looked.

View our latest analysis for Kinetik Holdings

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. As it happens, Kinetik Holdings issued 7.4% more new shares over the last year. As a result, its net income is now split between 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. You can see a chart of Kinetik Holdings' EPS by clicking here.

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

Three years ago, Kinetik Holdings lost money. The good news is that profit was up 345% in the last twelve months. On the other hand, earnings per share are only up 258% over the same period. So you can see that the dilution has had a bit of an impact on shareholders.

Changes in the share price do tend to reflect changes in earnings per share, in the long run. So Kinetik Holdings shareholders will want to see that EPS figure continue to increase. 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.

How Do Unusual Items Influence Profit?

On top of the dilution, we should also consider the US$22m impact of unusual items in the last year, which had the effect of suppressing profit. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's hardly a surprise given these line items are considered unusual. Assuming those unusual expenses don't come up again, we'd therefore expect Kinetik Holdings to produce a higher profit next year, all else being equal.

Our Take On Kinetik Holdings' Profit Performance

Kinetik Holdings suffered from unusual items which depressed its profit in its last report; if that is not repeated then profit should be higher, all else being equal. But on the other hand, the company issued more shares, so without buying more shares each shareholder will end up with a smaller part of the profit. Based on these factors, it's hard to tell if Kinetik Holdings' profits are a reasonable reflection of its underlying profitability. If you want to do dive deeper into Kinetik Holdings, you'd also look into what risks it is currently facing. For example, Kinetik Holdings has 4 warning signs (and 2 which make us uncomfortable) we think you should know about.

Our examination of Kinetik Holdings has focussed on certain factors that can make its earnings look better than they are. But there is always more to discover if you are capable of focussing your mind on minutiae. 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 that insiders are buying.

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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.