Lojas Quero-Quero's (BVMF:LJQQ3) Earnings Are Growing But Is There More To The Story?

Many investors consider it preferable to invest in profitable companies over unprofitable ones, because profitability suggests a business is sustainable. That said, the current statutory profit is not always a good guide to a company's underlying profitability. This article will consider whether Lojas Quero-Quero's (BVMF:LJQQ3) statutory profits are a good guide to its underlying earnings.

We like the fact that Lojas Quero-Quero made a profit of R$48.9m on its revenue of R$1.51b, in the last year. In the chart below, you can see that its profit and revenue have both grown over the last three years.

View our latest analysis for Lojas Quero-Quero

Importantly, statutory profits are not always the best tool for understanding a company's true earnings power, so it's well worth examining profits in a little more detail. This article will focus on the impact unusual items have had on Lojas Quero-Quero's statutory earnings. 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.

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Lojas Quero-Quero's profit was reduced by R$27m, due to unusual items, over the last year. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. 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 Lojas Quero-Quero to produce a higher profit next year, all else being equal.

Our Take On Lojas Quero-Quero's Profit Performance

Unusual items (expenses) detracted from Lojas Quero-Quero's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Lojas Quero-Quero's statutory profit actually understates its earnings potential! Better yet, its EPS are growing strongly, which is nice to see. 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. At Simply Wall St, we found 2 warning signs for Lojas Quero-Quero and we think they deserve your attention.

Today we've zoomed in on a single data point to better understand the nature of Lojas Quero-Quero's profit. But there are plenty of other ways to inform your opinion of a company. 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 that insiders are buying to be useful.

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This article by Simply Wall St is general in nature. 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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