STEP Energy Services (TSE:STEP) Posted Healthy Earnings But There Are Some Other Factors To Be Aware Of

STEP Energy Services Ltd.'s (TSE:STEP) robust earnings report didn't manage to move the market for its stock. We did some digging, and we found some concerning factors in the details.

Check out our latest analysis for STEP Energy Services

How Do Unusual Items Influence Profit?

Importantly, our data indicates that STEP Energy Services' profit received a boost of CA$38m in unusual items, over the last year. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. 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'. STEP Energy Services had a rather significant contribution from unusual items relative to its profit to September 2022. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

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 STEP Energy Services' Profit Performance

As we discussed above, we think the significant positive unusual item makes STEP Energy Services' earnings a poor guide to its underlying profitability. As a result, we think it may well be the case that STEP Energy Services' underlying earnings power is lower than its statutory profit. On the bright side, 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'd like to know more about STEP Energy Services as a business, it's important to be aware of any risks it's facing. In terms of investment risks, we've identified 3 warning signs with STEP Energy Services, and understanding them should be part of your investment process.

This note has only looked at a single factor that sheds light on the nature of STEP Energy Services' 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 that insiders are buying 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.