In This Article:
Investors were disappointed with Veren Inc.'s (TSE:VRN) earnings, despite the strong profit numbers. We did some digging and found some worrying underlying problems.
See our latest analysis for Veren
One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. In fact, Veren increased the number of shares on issue by 17% over the last twelve months by issuing new shares. Therefore, each share now receives a smaller portion of profit. 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 Veren's EPS by clicking here.
How Is Dilution Impacting Veren's Earnings Per Share (EPS)?
We don't have any data on the company's profits from three years ago. Zooming in to the last year, we still can't talk about growth rates coherently, since it made a loss last year. But mathematics aside, it is always good to see when a formerly unprofitable business come good (though we accept profit would have been higher if dilution had not been required). Therefore, the dilution is having a noteworthy influence on shareholder returns.
In the long term, if Veren's earnings per share can increase, then the share price should too. 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.
Our Take On Veren's Profit Performance
Over the last year Veren issued new shares and so, there's a noteworthy divergence between EPS and net income growth. Because of this, we think that it may be that Veren's statutory profits are better than its underlying earnings power. On the bright side, the company showed enough improvement to book a profit this year, after losing money last year. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. You'd be interested to know, that we found 3 warning signs for Veren and you'll want to know about them.