Vital Energy's (NYSE:VTLE) Anemic Earnings Might Be Worse Than You Think

A lackluster earnings announcement from Vital Energy, Inc. (NYSE:VTLE) last week didn't sink the stock price. We think that investors are worried about some weaknesses underlying the earnings.

See our latest analysis for Vital Energy

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. In fact, Vital Energy increased the number of shares on issue by 101% over the last twelve months by issuing new shares. Therefore, each share now receives a smaller portion of profit. 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 Vital Energy's EPS by clicking here.

How Is Dilution Impacting Vital Energy's Earnings Per Share (EPS)?

Vital Energy was losing money three years ago. And even focusing only on the last twelve months, we see profit is down 70%. Sadly, earnings per share fell further, down a full 83% in that time. Therefore, one can observe that the dilution is having a fairly profound effect on shareholder returns.

If Vital Energy's 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 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.

The Impact Of Unusual Items On Profit

Alongside that dilution, it's also important to note that Vital Energy's profit suffered from unusual items, which reduced profit by US$82m in the last twelve months. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect Vital Energy to produce a higher profit next year, all else being equal.

Our Take On Vital Energy's Profit Performance

To sum it all up, Vital Energy took a hit from unusual items which pushed its profit down; without that, it would have made more money. 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, we think it's very unlikely that Vital Energy's statutory profits make it seem much weaker than it is. If you want to do dive deeper into Vital Energy, you'd also look into what risks it is currently facing. Be aware that Vital Energy is showing 4 warning signs in our investment analysis and 1 of those is concerning...

Our examination of Vital Energy has focussed on certain factors that can make its earnings look better than they are. But there are plenty of other ways to inform your opinion of a company. 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. 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.