Statistically speaking, it is less risky to invest in profitable companies than in 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. In this article, we’ll look at how useful this year’s statutory profit is, when analysing BioMarin Pharmaceutical (NASDAQ:BMRN).
It’s good to see that over the last twelve months BioMarin Pharmaceutical made a profit of US$122.3m on revenue of US$1.85b. 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.
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 focus on the impact unusual items have had on BioMarin Pharmaceutical’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
Importantly, our data indicates that BioMarin Pharmaceutical’s profit received a boost of US$69m in unusual items, over the last year. We can’t deny that higher profits generally leave us optimistic, but we’d prefer it if the profit were to be sustainable. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. And, after all, that’s exactly what the accounting terminology implies. BioMarin Pharmaceutical had a rather significant contribution from unusual items relative to its profit to June 2020. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.
Our Take On BioMarin Pharmaceutical’s Profit Performance
As previously mentioned, BioMarin Pharmaceutical’s large boost from unusual items won’t be there indefinitely, so its statutory earnings are probably a poor guide to its underlying profitability. For this reason, we think that BioMarin Pharmaceutical’s statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. The good news is that it earned a profit in the last twelve months, despite its previous loss. Of course, we’ve only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. Keep in mind, when it comes to analysing a stock it’s worth noting the risks involved. Every company has risks, and we’ve spotted 3 warning signs for BioMarin Pharmaceutical (of which 1 is significant!) you should know about.
This note has only looked at a single factor that sheds light on the nature of BioMarin Pharmaceutical’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. 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.
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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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