Despite posting some strong earnings, the market for Viper Energy, Inc.'s (NASDAQ:VNOM) stock hasn't moved much. We did some digging, and we found some concerning factors in the details.

View our latest analysis for Viper Energy

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. In fact, Viper Energy increased the number of shares on issue by 24% over the last twelve months by issuing new shares. Therefore, each share now receives a smaller portion of profit. 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. Check out Viper Energy's historical EPS growth by clicking on this link.

How Is Dilution Impacting Viper Energy's Earnings Per Share (EPS)?

As you can see above, Viper Energy has been growing its net income over the last few years, with an annualized gain of 522% over three years. But EPS was only up 352% per year, in the exact same period. And the 80% profit boost in the last year certainly seems impressive at first glance. But in comparison, EPS only increased by 42% 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 Viper Energy 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.

Our Take On Viper Energy's Profit Performance

Each Viper Energy share now gets a meaningfully smaller slice of its overall profit, due to dilution of existing shareholders. Therefore, it seems possible to us that Viper Energy's true underlying earnings power is actually less than its statutory profit. But on the bright side, its earnings per share have grown at an extremely impressive rate over the last three years. 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. Every company has risks, and we've spotted 3 warning signs for Viper Energy (of which 1 is significant!) you should know about.

This note has only looked at a single factor that sheds light on the nature of Viper Energy's profit. 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) simplywallst.com.

This 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.