Soft earnings didn't appear to concern Appen Limited's (ASX:APX) shareholders over the last week. We think that the softer headline numbers might be getting counterbalanced by some positive underlying factors.
How Do Unusual Items Influence Profit?
To properly understand Appen's profit results, we need to consider the US$4.1m expense attributed to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. 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 Appen to produce a higher profit next year, all else being equal.
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 Appen's Profit Performance
Unusual items (expenses) detracted from Appen's earnings over the last year, but we might see an improvement next year. Because of this, we think Appen's earnings potential is at least as good as it seems, and maybe even better! And on top of that, its earnings per share have grown at 65% per year over the last three years. 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 Appen as a business, it's important to be aware of any risks it's facing. In terms of investment risks, we've identified 1 warning sign with Appen, and understanding this should be part of your investment process.
Today we've zoomed in on a single data point to better understand the nature of Appen'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. 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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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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Appen Limited, together with its subsidiaries, operates as an AI lifecycle company that collects and labels image, text, speech, audio, video, and other data used to build and enhance artificial intelligence systems.
Flawless balance sheet and undervalued.