Rumo's (BVMF:RAIL3) Strong Earnings Are Of Good Quality

Rumo S.A. (BVMF:RAIL3) just reported healthy earnings but the stock price didn't move much. We think that investors have missed some encouraging factors underlying the profit figures.

View our latest analysis for Rumo

How Do Unusual Items Influence Profit?

For anyone who wants to understand Rumo's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by R$922m due 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. 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 Rumo 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 Rumo's Profit Performance

Unusual items (expenses) detracted from Rumo's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Rumo's statutory profit actually understates its earnings potential! And on top of that, its earnings per share have grown at an extremely impressive rate 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. If you want to do dive deeper into Rumo, you'd also look into what risks it is currently facing. For instance, we've identified 2 warning signs for Rumo (1 is a bit concerning) you should be familiar with.

This note has only looked at a single factor that sheds light on the nature of Rumo'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. 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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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.