Does AeroVironment’s (NASDAQ:AVAV) Statutory Profit Adequately Reflect Its Underlying Profit?

Many investors consider it preferable to invest in profitable companies over unprofitable ones, because profitability suggests a business is sustainable. 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 AeroVironment (NASDAQ:AVAV).

We like the fact that AeroVironment made a profit of US$39.1m on its revenue of US$333.4m, in the last year. The good news is that the company managed to grow its revenue over the last three years, and also move from loss-making to profitable.

View our latest analysis for AeroVironment

NasdaqGS:AVAV Income Statement, January 11th 2020
NasdaqGS:AVAV Income Statement, January 11th 2020

Importantly, statutory profits are not always the best tool for understanding a company’s true earnings power, so it’s well worth examining profits in a little more detail. This article will discuss how unusual items have impacted AeroVironment’s most recent profit results. 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?

For anyone who wants to understand AeroVironment’s profit beyond the statutory numbers, it’s important to note that during the last twelve months statutory profit was reduced by US$4.8m due 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 that’s hardly a surprise given these line items are considered unusual. If AeroVironment doesn’t see those unusual expenses repeat, then all else being equal we’d expect its profit to increase over the coming year.

Our Take On AeroVironment’s Profit Performance

Unusual items (expenses) detracted from AeroVironment’s earnings over the last year, but we might see an improvement next year. Because of this, we think AeroVironment’s earnings potential is at least as good as it seems, and maybe even better! Unfortunately, though, its earnings per share actually fell back over the last year. 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. While it’s really important to consider how well a company’s statutory earnings represent its true earnings power, it’s also worth taking a look at what analysts are forecasting for the future. At Simply Wall St, we have analyst estimates which you can view by clicking here.

This note has only looked at a single factor that sheds light on the nature of AeroVironment’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. 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.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.