Cellnet Group's (ASX:CLT) Profits Appear To Have Quality Issues

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

See our latest analysis for Cellnet Group

The Impact Of Unusual Items On Profit

To properly understand Cellnet Group's profit results, we need to consider the AU$1.2m gain attributed to unusual items. 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. Cellnet Group had a rather significant contribution from unusual items relative to its profit to June 2021. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

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

Our Take On Cellnet Group's Profit Performance

As we discussed above, we think the significant positive unusual item makes Cellnet Group's earnings a poor guide to its underlying profitability. As a result, we think it may well be the case that Cellnet Group's underlying earnings power is lower than its statutory profit. 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 Cellnet Group as a business, it's important to be aware of any risks it's facing. Every company has risks, and we've spotted 6 warning signs for Cellnet Group (of which 1 is a bit concerning!) you should know about.

Today we've zoomed in on a single data point to better understand the nature of Cellnet Group'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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