Statutory Profit Doesn't Reflect How Good Rossi Residencial's (BVMF:RSID3) Earnings Are

The subdued stock price reaction suggests that Rossi Residencial S.A.'s (BVMF:RSID3) strong earnings didn't offer any surprises. We think that investors have missed some encouraging factors underlying the profit figures.

View our latest analysis for Rossi Residencial

The Impact Of Unusual Items On Profit

To properly understand Rossi Residencial's profit results, we need to consider the R$149m expense attributed to unusual items. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. 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. Rossi Residencial took a rather significant hit from unusual items in the year to December 2020. As a result, we can surmise that the unusual items made its statutory profit significantly weaker 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 Rossi Residencial.

Our Take On Rossi Residencial's Profit Performance

As we mentioned previously, the Rossi Residencial's profit was hampered by unusual items in the last year. Based on this observation, we consider it possible that Rossi Residencial's statutory profit actually understates its earnings potential! And it's also positive that the company showed enough improvement to book a profit this year, after losing money 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. If you want to do dive deeper into Rossi Residencial, you'd also look into what risks it is currently facing. Case in point: We've spotted 5 warning signs for Rossi Residencial you should be mindful of and 2 of these don't sit too well with us.

Today we've zoomed in on a single data point to better understand the nature of Rossi Residencial'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 that insiders are buying.

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