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Whitecap Resources Inc. (TSE:WCP) announced strong profits, but the stock was stagnant. We did some digging, and we found some concerning factors in the details.
Our free stock report includes 2 warning signs investors should be aware of before investing in Whitecap Resources. Read for free now.
How Do Unusual Items Influence Profit?
Importantly, our data indicates that Whitecap Resources' profit received a boost of CA$244m in unusual items, over the last year. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. And, after all, that's exactly what the accounting terminology implies. If Whitecap Resources doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.
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 Whitecap Resources' Profit Performance
We'd posit that Whitecap Resources' statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Therefore, it seems possible to us that Whitecap Resources' true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 36% EPS growth in the last year. 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. Our analysis shows 2 warning signs for Whitecap Resources (1 is significant!) and we strongly recommend you look at them before investing.
Today we've zoomed in on a single data point to better understand the nature of Whitecap Resources' 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.