Broadly speaking, profitable businesses are less risky than unprofitable ones. 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 PICO Holdings (NASDAQ:PICO).
While PICO Holdings was able to generate revenue of US$17.5m in the last twelve months, we think its profit result of US$3.03m was more important. Even though revenue is down over the last three years, you can see in the chart below that the company has moved from loss-making to profitable.
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 focus on the impact unusual items have had on PICO Holdings’s statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of PICO Holdings.
How Do Unusual Items Influence Profit?
For anyone who wants to understand PICO Holdings’s profit beyond the statutory numbers, it’s important to note that during the last twelve months statutory profit was reduced by US$1.0m due to unusual items. It’s never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that’s hardly a surprise given these line items are considered unusual. Assuming those unusual expenses don’t come up again, we’d therefore expect PICO Holdings to produce a higher profit next year, all else being equal.
Our Take On PICO Holdings’s Profit Performance
Because unusual items detracted from PICO Holdings’s earnings over the last year, you could argue that we can expect an improved result in the current quarter. Because of this, we think PICO Holdings’s earnings potential is at least as good as it seems, and maybe even better! On the other hand, its EPS actually shrunk in the last twelve months. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company’s potential, but there is plenty more to consider. Keep in mind, when it comes to analysing a stock it’s worth noting the risks involved. For example, we’ve discovered 1 warning sign that you should run your eye over to get a better picture of PICO Holdings.
This note has only looked at a single factor that sheds light on the nature of PICO Holdings’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 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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