As a general rule, we think profitable companies are less risky than companies that lose money. That said, the current statutory profit is not always a good guide to a company’s underlying profitability. This article will consider whether ICU Medical’s (NASDAQ:ICUI) statutory profits are a good guide to its underlying earnings.
It’s good to see that over the last twelve months ICU Medical made a profit of US$82.9m on revenue of US$1.25b. In the chart below, you can see that its profit and revenue have both grown over the last three years, although its revenue has slipped in the last twelve months.
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 discuss how unusual items have impacted ICU Medical’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?
Importantly, our data indicates that ICU Medical’s profit was reduced by US$58.7m, 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. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that’s exactly what the accounting terminology implies. If ICU Medical 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 ICU Medical’s Profit Performance
Unusual items (expenses) detracted from ICU Medical’s earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that ICU Medical’s statutory profit actually understates its earnings potential! And on top of that, its earnings per share have grown at 51% per year over the last three years. 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. With this in mind, we wouldn’t consider investing in a stock unless we had a thorough understanding of the risks. In terms of investment risks, we’ve identified 2 warning signs with ICU Medical, and understanding them should be part of your investment process.
Today we’ve zoomed in on a single data point to better understand the nature of ICU Medical’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.
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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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