Stock Analysis

Robust Earnings May Not Tell The Whole Story For Donaco International (ASX:DNA)

ASX:DNA
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Donaco International Limited's (ASX:DNA) healthy profit numbers didn't contain any surprises for investors. We believe that shareholders have noticed some concerning factors beyond the statutory profit numbers.

Check out our latest analysis for Donaco International

earnings-and-revenue-history
ASX:DNA Earnings and Revenue History September 7th 2021

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Donaco International's profit received a boost of AU$43m 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. Which is hardly surprising, given the name. We can see that Donaco International's positive unusual items were quite significant relative to its profit in the year to June 2021. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

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

Our Take On Donaco International's Profit Performance

As we discussed above, we think the significant positive unusual item makes Donaco International's earnings a poor guide to its underlying profitability. For this reason, we think that Donaco International'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. 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. If you'd like to know more about Donaco International as a business, it's important to be aware of any risks it's facing. In terms of investment risks, we've identified 3 warning signs with Donaco International, and understanding these bad boys should be part of your investment process.

Today we've zoomed in on a single data point to better understand the nature of Donaco International'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. 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.
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