Industrial Holding Bulgaria AD's (BUL:IHB) Profits Appear To Have Quality Issues

Industrial Holding Bulgaria AD's (BUL:IHB) robust recent earnings didn't do much to move the stock. We believe that shareholders have noticed some concerning factors beyond the statutory profit numbers.

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The Impact Of Unusual Items On Profit

Importantly, our data indicates that Industrial Holding Bulgaria AD's profit received a boost of лв1.8m 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. And that's as you'd expect, given these boosts are described as 'unusual'. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Industrial Holding Bulgaria AD.

Our Take On Industrial Holding Bulgaria AD's Profit Performance

Arguably, Industrial Holding Bulgaria AD's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Industrial Holding Bulgaria AD's statutory profits are better than its underlying earnings power. But the happy news is that, while acknowledging we have to look beyond the statutory numbers, those numbers are still improving, with EPS growing at a very high rate over the last year. 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. Our analysis shows 2 warning signs for Industrial Holding Bulgaria AD (1 is potentially serious!) and we strongly recommend you look at them before investing.

Today we've zoomed in on a single data point to better understand the nature of Industrial Holding Bulgaria AD'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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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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.