The recent earnings posted by United Overseas Australia Limited (ASX:UOS) were solid, but the stock didn't move as much as we expected. However the statutory profit number doesn't tell the whole story, and we have found some factors which might be of concern to shareholders.
The Impact Of Unusual Items On Profit
For anyone who wants to understand United Overseas Australia's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from AU$32m worth of 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. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's as you'd expect, given these boosts are described as 'unusual'. If United Overseas Australia doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.
Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of United Overseas Australia.
Our Take On United Overseas Australia's Profit Performance
We'd posit that United Overseas Australia's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Therefore, it seems possible to us that United Overseas Australia's true underlying earnings power is actually less than its statutory profit. And we are pleased to note that EPS is at least heading in the right direction in the alst twelve months. 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. If you want to do dive deeper into United Overseas Australia, you'd also look into what risks it is currently facing. For example, United Overseas Australia has 3 warning signs (and 1 which is significant) we think you should know about.
This note has only looked at a single factor that sheds light on the nature of United Overseas Australia's profit. But there are plenty of other ways to inform your opinion of a company. Some people consider a high return on equity to be a good sign of a quality business. 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.
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