Why Melnick Desenvolvimento Imobiliário's (BVMF:MELK3) Earnings Are Better Than They Seem

Melnick Desenvolvimento Imobiliário S.A. (BVMF:MELK3) announced a healthy earnings result recently, and the market rewarded it with a strong uplift in the stock price. This reaction by the market reaction is understandable when looking at headline profits and we have found some further encouraging factors.

See our latest analysis for Melnick Desenvolvimento Imobiliário

How Do Unusual Items Influence Profit?

For anyone who wants to understand Melnick Desenvolvimento Imobiliário's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by R$16m due to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect Melnick Desenvolvimento Imobiliário 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 Melnick Desenvolvimento Imobiliário's Profit Performance

Unusual items (expenses) detracted from Melnick Desenvolvimento Imobiliário's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Melnick Desenvolvimento Imobiliário's statutory profit actually understates its earnings potential! And on top of that, its earnings per share have grown at 57% per year over the last three years. 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. While conducting our analysis, we found that Melnick Desenvolvimento Imobiliário has 1 warning sign and it would be unwise to ignore it.

Today we've zoomed in on a single data point to better understand the nature of Melnick Desenvolvimento Imobiliário's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. Some people consider a high return on equity to be a good sign of a quality business. 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 with significant insider holdings 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.