20-03-2025
Journey Energy's (TSE:JOY) Weak Earnings Might Be Worse Than They Appear
Journey Energy Inc.'s (TSE:JOY) stock wasn't much affected by its recent lackluster earnings numbers. We did some digging, and we believe that investors are missing some worrying factors underlying the profit figures.
See our latest analysis for Journey Energy
To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. As it happens, Journey Energy issued 9.4% more new shares over the last year. That means its earnings are split among a greater number of shares. To celebrate net income while ignoring dilution is like rejoicing because you have a single slice of a larger pizza, but ignoring the fact that the pizza is now cut into many more slices. Check out Journey Energy's historical EPS growth by clicking on this link.
Journey Energy's net profit dropped by 95% per year over the last three years. And even focusing only on the last twelve months, we see profit is down 67%. Like a sack of potatoes thrown from a delivery truck, EPS fell harder, down 69% in the same period. And so, you can see quite clearly that dilution is influencing shareholder earnings.
In the long term, if Journey Energy'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 the ordinary retail shareholder, EPS is a great measure to check your hypothetical "share" of the company's profit.
Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Journey Energy.
Alongside that dilution, it's also important to note that Journey Energy's profit was boosted by unusual items worth CA$5.7m in the last twelve months. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that's exactly what the accounting terminology implies. We can see that Journey Energy's positive unusual items were quite significant relative to its profit in the year to December 2024. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.
In its last report Journey Energy benefitted from unusual items which boosted its profit, which could make the profit seem better than it really is on a sustainable basis. And furthermore, it went and issued plenty of new shares, ensuring that each shareholder (who did not tip more money in) now owns a smaller proportion of the company. For the reasons mentioned above, we think that a perfunctory glance at Journey Energy's statutory profits might make it look better than it really is on an underlying level. If you'd like to know more about Journey Energy as a business, it's important to be aware of any risks it's facing. While conducting our analysis, we found that Journey Energy has 3 warning signs and it would be unwise to ignore these.
In this article we've looked at a number of factors that can impair the utility of profit numbers, and we've come away cautious. But there are plenty of other ways to inform your opinion of a company. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to 'follow the money' and search out stocks that insiders are buying. 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) 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.
