Are Ichor Holdings’s (NASDAQ:ICHR) Statutory Earnings A Good Guide To Its Underlying Profitability?

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. Today we’ll focus on whether this year’s statutory profits are a good guide to understanding Ichor Holdings (NASDAQ:ICHR).

It’s good to see that over the last twelve months Ichor Holdings made a profit of US$19.1m on revenue of US$785.4m. As you can see in the chart below, its profit has declined over the last three years, even though its revenue has increased.

Check out our latest analysis for Ichor Holdings

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NasdaqGS:ICHR Earnings and Revenue History September 9th 2020

Of course, when it comes to statutory profit, the devil is often in the detail, and we can get a better sense for a company by diving deeper into the financial statements. As a reuslt, we think it’s important to consider how unusual items and the recent tax benefit have influenced Ichor Holdings’ statutory 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.

How Do Unusual Items Influence Profit?

To properly understand Ichor Holdings’ profit results, we need to consider the US$4.0m expense attributed to unusual items. 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. If Ichor Holdings doesn’t see those unusual expenses repeat, then all else being equal we’d expect its profit to increase over the coming year.

An Unusual Tax Situation

Having already discussed the impact of the unusual items, we should also note that Ichor Holdings received a tax benefit of US$5.0m. This is of course a bit out of the ordinary, given it is more common for companies to be paying tax than receiving tax benefits! Of course, prima facie it’s great to receive a tax benefit. However, our data indicates that tax benefits can temporarily boost statutory profit in the year it is booked, but subsequently profit may fall back. In the likely event the tax benefit is not repeated, we’d expect to see its statutory profit levels drop, at least in the absence of strong growth. While we think it’s good that the company has booked a tax benefit, it does mean that there’s every chance the statutory profit will come in a lot higher than it would be if the income was adjusted for one-off factors.

Our Take On Ichor Holdings’ Profit Performance

In its last report Ichor Holdings received a tax benefit which might make its profit look better than it really is on a underlying level. But on the other hand, it also saw an unusual item depress its profit. Based on these factors, it’s hard to tell if Ichor Holdings’ profits are a reasonable reflection of its underlying profitability. If you’d like to know more about Ichor Holdings as a business, it’s important to be aware of any risks it’s facing. Case in point: We’ve spotted 5 warning signs for Ichor Holdings you should be mindful of and 1 of these is concerning.

In this article we’ve looked at a number of factors that can impair the utility of profit numbers, as a guide to a business. But there are plenty of other ways to inform your opinion of a company. 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 that insiders are buying to be useful.

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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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