Stock Analysis

Hammond Power Solutions' (TSE:HPS.A) Shareholders May Want To Dig Deeper Than Statutory Profit

TSX:HPS.A
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The market for Hammond Power Solutions Inc.'s (TSE:HPS.A) stock was strong after it released a healthy earnings report last week. Despite this, our analysis suggests that there are some factors weakening the foundations of those good profit numbers.

View our latest analysis for Hammond Power Solutions

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TSX:HPS.A Earnings and Revenue History April 1st 2021

The Impact Of Unusual Items On Profit

To properly understand Hammond Power Solutions' profit results, we need to consider the CA$10m gain attributed to unusual items. 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'. We can see that Hammond Power Solutions' positive unusual items were quite significant relative to its profit in the year to December 2020. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger 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 Hammond Power Solutions.

Our Take On Hammond Power Solutions' Profit Performance

As we discussed above, we think the significant positive unusual item makes Hammond Power Solutions' earnings a poor guide to its underlying profitability. For this reason, we think that Hammond Power Solutions' statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. But at least holders can take some solace from the 36% per annum growth in EPS for the last three. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. If you'd like to know more about Hammond Power Solutions as a business, it's important to be aware of any risks it's facing. While conducting our analysis, we found that Hammond Power Solutions has 3 warning signs and it would be unwise to ignore them.

Today we've zoomed in on a single data point to better understand the nature of Hammond Power Solutions' profit. But there are plenty of other ways to inform your opinion of a company. 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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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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