We Think You Can Look Beyond Zumtobel Group's (VIE:ZAG) Lackluster Earnings

Shareholders appeared unconcerned with Zumtobel Group AG's (VIE:ZAG) lackluster earnings report last week. Our analysis suggests that while the profits are soft, the foundations of the business are strong.

View our latest analysis for Zumtobel Group

How Do Unusual Items Influence Profit?

For anyone who wants to understand Zumtobel Group's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by €7.4m due to unusual items. 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 that's hardly a surprise given these line items are considered unusual. Assuming those unusual expenses don't come up again, we'd therefore expect Zumtobel Group to produce a higher profit next year, all else being equal.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Zumtobel Group.

Our Take On Zumtobel Group's Profit Performance

Unusual items (expenses) detracted from Zumtobel Group's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Zumtobel Group's statutory profit actually understates its earnings potential! Better yet, its EPS are growing strongly, which is nice to see. 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. So while earnings quality is important, it's equally important to consider the risks facing Zumtobel Group at this point in time. Every company has risks, and we've spotted 1 warning sign for Zumtobel Group you should know about.

This note has only looked at a single factor that sheds light on the nature of Zumtobel Group'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. 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. 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.