Illumina’s (NASDAQ:ILMN) Earnings Are Growing But Is There More To The Story?

Statistically speaking it is less risky to invest in profitable companies than in unprofitable ones. Having said that, sometimes statutory profit levels are not a good guide to ongoing profitability, because some short term one-off factor has impacted profit levels. Today we’ll focus on whether this year’s statutory profits are a good guide to understanding Illumina (NASDAQ:ILMN).

We like the fact that Illumina made a profit of US$973.0m on its revenue of US$3.46b, in the last year. Happily, it has grown both its profit and revenue over the last three years, as you can see in the chart below.

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NasdaqGS:ILMN Income Statement, December 15th 2019
NasdaqGS:ILMN Income Statement, December 15th 2019

Not all profits are equal, and we can learn more about the nature of a company’s past profitability by diving deeper into the financial statements. This article will focus on the impact unusual items have had on Illumina’s statutory earnings. 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.

The Impact Of Unusual Items On Profit

For anyone who wants to understand Illumina’s profit beyond the statutory numbers, it’s important to note that during the last twelve months statutory profit gained from US$131m worth of unusual items. We can’t deny that higher profits generally leave us optmistic, but we’d prefer it if the profit were to be sustainable. We ran the numbers on most publicly listed companies worldwide, and it’s very common for unusual items to be once-off in nature. Which is hardly suprising, given the name. Assuming those unusual items don’t show up again in the current year, we’d thus expect profit to be weaker next year (in the absence of business growth, that is).

Our Take On Illumina’s Profit Performance

Arguably, Illumina’s statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Illumina’s true underlying earnings power is actually less than its statutory profit. But the good news is that its EPS growth over the last three years has been very impressive. 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. Obviously, we love to consider the historical data to inform our opinion of a company. But it can be really valuable to consider what other analysts are forecasting. Luckily, you can check out what analysts are forecsting by clicking here.

Today we’ve zoomed in on a single data point to better understand the nature of Illumina’s profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

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.