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The recent earnings posted by Exxon Mobil Corporation (NYSE:XOM) were solid, but the stock didn't move as much as we expected. We believe that shareholders have noticed some concerning factors beyond the statutory profit numbers.
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One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. As it happens, Exxon Mobil issued 9.3% more new shares over the last year. As a result, its net income is now split between a greater number of shares. To talk about net income, without noticing earnings per share, is to be distracted by the big numbers while ignoring the smaller numbers that talk to per share value. You can see a chart of Exxon Mobil's EPS by clicking here.
How Is Dilution Impacting Exxon Mobil's Earnings Per Share (EPS)?
Exxon Mobil has improved its profit over the last three years, with an annualized gain of 29% in that time. However, net income was pretty flat over the last year with a miniscule increase. In contrast, earnings per share are actually down a full 7.3%, over the last twelve months. So you can see that the dilution has had a bit of an impact on shareholders.
If Exxon Mobil'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.
Our Take On Exxon Mobil's Profit Performance
Each Exxon Mobil share now gets a meaningfully smaller slice of its overall profit, due to dilution of existing shareholders. Therefore, it seems possible to us that Exxon Mobil's true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 25% per annum growth in EPS for the last three. 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. Ultimately, this article has formed an opinion based on historical data. However, it can also be great to think about what analysts are forecasting for the future. At Simply Wall St, we have analyst estimates which you can view by clicking here.