As a general rule, we think profitable companies are less risky than companies that lose money. However, sometimes companies receive a one-off boost (or reduction) to their profit, and it’s not always clear whether statutory profits are a good guide, going forward. This article will consider whether Innovations’ (NYSE:PGTI) statutory profits are a good guide to its underlying earnings.
It’s good to see that over the last twelve months Innovations made a profit of US$38.4m on revenue of US$835.8m. Happily, it has grown both its profit and revenue over the last three years (though we note its profit is down over the last year).
See our latest analysis for Innovations
Of course, it is only sensible to look beyond the statutory profits and question how well those numbers represent the sustainable earnings power of the business. This article will focus on the impact unusual items have had on Innovations’ statutory earnings. 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?
Importantly, our data indicates that Innovations’ profit was reduced by US$16m, due to unusual items, over the last year. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And, after all, that’s exactly what the accounting terminology implies. Assuming those unusual expenses don’t come up again, we’d therefore expect Innovations to produce a higher profit next year, all else being equal.
Our Take On Innovations’ Profit Performance
Unusual items (expenses) detracted from Innovations’ earnings over the last year, but we might see an improvement next year. Because of this, we think Innovations’ earnings potential is at least as good as it seems, and maybe even better! And the EPS is up 32% annually, over the last three years. Of course, we’ve only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. 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 4 warning signs for Innovations and you’ll want to know about these.
This note has only looked at a single factor that sheds light on the nature of Innovations’ profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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 that insiders are buying.
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This article by Simply Wall St is general in nature. 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.
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