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Despite announcing strong earnings, Orezone Gold Corporation's (TSE:ORE) stock was sluggish. We think that the market might be paying attention to some underlying factors that they find to be concerning.
In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. Orezone Gold expanded the number of shares on issue by 40% over the last year. 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. Check out Orezone Gold's historical EPS growth by clicking on this link.
How Is Dilution Impacting Orezone Gold's Earnings Per Share (EPS)?
Three years ago, Orezone Gold lost money. On the bright side, in the last twelve months it grew profit by 29%. On the other hand, earnings per share are only up 14% over the same period. Therefore, one can observe that the dilution is having a fairly profound effect on shareholder returns.
Changes in the share price do tend to reflect changes in earnings per share, in the long run. So Orezone Gold shareholders will want to see that EPS figure continue to increase. But on the other hand, we'd be far less excited to learn profit (but not EPS) was improving. For the ordinary retail shareholder, EPS is a great measure to check your hypothetical "share" of the company's profit.
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?
Alongside that dilution, it's also important to note that Orezone Gold's profit was boosted by unusual items worth US$8.9m in the last twelve months. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. 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. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).
Our Take On Orezone Gold's Profit Performance
In its last report Orezone Gold benefitted from unusual items which boosted its profit, which could make the profit seem better than it really is on a sustainable basis. On top of that, the dilution means that its earnings per share performance is worse than its profit performance. Considering all this we'd argue Orezone Gold's profits probably give an overly generous impression of its sustainable level of profitability. If you'd like to know more about Orezone Gold as a business, it's important to be aware of any risks it's facing. At Simply Wall St, we found 1 warning sign for Orezone Gold and we think they deserve your attention.