Gulf Navigation Holding PJSC's (DFM:GULFNAV) Solid Earnings May Rest On Weak Foundations

Gulf Navigation Holding PJSC's (DFM:GULFNAV) healthy profit numbers didn't contain any surprises for investors. We think this is due to investors looking beyond the statutory profits and being concerned with what they see.

Check out our latest analysis for Gulf Navigation Holding PJSC

How Do Unusual Items Influence Profit?

To properly understand Gulf Navigation Holding PJSC's profit results, we need to consider the د.إ92m gain attributed to unusual items. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And that's as you'd expect, given these boosts are described as 'unusual'. Gulf Navigation Holding PJSC had a rather significant contribution from unusual items relative to its profit to December 2021. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Gulf Navigation Holding PJSC.

Our Take On Gulf Navigation Holding PJSC's Profit Performance

As we discussed above, we think the significant positive unusual item makes Gulf Navigation Holding PJSC's earnings a poor guide to its underlying profitability. As a result, we think it may well be the case that Gulf Navigation Holding PJSC's underlying earnings power is lower than its statutory profit. On the bright side, the company showed enough improvement to book a profit this year, after losing money last year. 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. To that end, you should learn about the 3 warning signs we've spotted with Gulf Navigation Holding PJSC (including 1 which can't be ignored).

This note has only looked at a single factor that sheds light on the nature of Gulf Navigation Holding PJSC'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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.