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Investors were disappointed with Calfrac Well Services Ltd.'s (TSE:CFW) recent earnings. We think that they may have more to worry about than just soft profit numbers.
View our latest analysis for Calfrac Well Services
One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. In fact, Calfrac Well Services increased the number of shares on issue by 6.1% 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 Calfrac Well Services' EPS by clicking here.
How Is Dilution Impacting Calfrac Well Services' Earnings Per Share (EPS)?
Unfortunately, we don't have any visibility into its profits three years back, because we lack the data. And even focusing only on the last twelve months, we see profit is down 9.9%. Like a sack of potatoes thrown from a delivery truck, EPS fell harder, down 31% in the same period. Therefore, the dilution is having a noteworthy influence on shareholder returns.
If Calfrac Well Services' EPS can grow over time then that drastically improves the chances of the share price moving in the same direction. 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.
The Impact Of Unusual Items On Profit
Alongside that dilution, it's also important to note that Calfrac Well Services' profit was boosted by unusual items worth CA$48m in the last twelve months. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And that's as you'd expect, given these boosts are described as 'unusual'. Calfrac Well Services had a rather significant contribution from unusual items relative to its profit to June 2024. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.