We’re Not Counting On Gurktaler (VIE:GAGS) To Sustain Its Statutory Profitability

Many investors consider it preferable to invest in profitable companies over unprofitable ones, because profitability suggests a business is sustainable. That said, the current statutory profit is not always a good guide to a company’s underlying profitability. This article will consider whether Gurktaler‘s (VIE:GAGS) statutory profits are a good guide to its underlying earnings.

It’s good to see that over the last twelve months Gurktaler made a profit of €2.67m on revenue of €948.0k. In the chart below, you can see that its profit and revenue have both grown over the last three years.

See our latest analysis for Gurktaler

WBAG:GAGS Income Statement, December 10th 2019
WBAG:GAGS Income Statement, December 10th 2019

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 Gurktaler’s statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Gurktaler.

The Impact Of Unusual Items On Profit

To properly understand Gurktaler’s profit results, we need to consider the €368k gain attributed to unusual items. While it’s always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. 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. Gurktaler had a rather significant contribution from unusual items relative to its profit to March 2019. 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 Gurktaler’s Profit Performance

As we discussed above, we think the significant positive unusual item makes Gurktaler’s earnings a poor guide to its underlying profitability. As a result, we think it may well be the case that Gurktaler’s underlying earnings power is lower than its statutory profit. But on the bright side, its earnings per share have grown at an extremely impressive rate over the last three years. 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. Just as investors must consider earnings, it is also important to take into account the strength of a company’s balance sheet. If you’re interestedwe have a graphic representation of Gurktaler’s balance sheet.

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