We Think Close the Loop's (ASX:CLG) Solid Earnings Are Understated

The stock was sluggish on the back of Close the Loop Ltd's (ASX:CLG) recent earnings report. We have done some analysis, and found some encouraging factors that we believe the shareholders should consider.

View our latest analysis for Close the Loop

The Impact Of Unusual Items On Profit

To properly understand Close the Loop's profit results, we need to consider the AU$1.3m expense attributed to unusual items. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And, after all, that's exactly what the accounting terminology implies. If Close the Loop doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

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.

Our Take On Close the Loop's Profit Performance

Because unusual items detracted from Close the Loop's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Because of this, we think Close the Loop's earnings potential is at least as good as it seems, and maybe even better! And on top of that, its earnings per share increased by 57% in the 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Case in point: We've spotted 1 warning sign for Close the Loop you should be aware of.

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