Ipal's (SNSE:IPAL) Solid Profits Have Weak Fundamentals
Despite posting some strong earnings, the market for Ipal S.A.'s (SNSE:IPAL) stock hasn't moved much. We did some digging, and we found some concerning factors in the details.
The Impact Of Unusual Items On Profit
For anyone who wants to understand Ipal's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CL$475m worth of unusual items. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. 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. If Ipal doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.
Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Ipal.
Our Take On Ipal's Profit Performance
Arguably, Ipal's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Ipal's true underlying earnings power is actually less than its statutory profit. But the happy news is that, while acknowledging we have to look beyond the statutory numbers, those numbers are still improving, with EPS growing at a very high rate over the last year. 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. If you want to do dive deeper into Ipal, you'd also look into what risks it is currently facing. Case in point: We've spotted 2 warning signs for Ipal you should be aware of.
This note has only looked at a single factor that sheds light on the nature of Ipal's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. Some people consider a high return on equity to be a good sign of a quality business. While it might take a little research on your behalf, you may find this free collection of companies boasting high return on equity, or this list of stocks with significant insider holdings to be useful.
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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.