Gulf & Pacific Equities' (CVE:GUF) Earnings Are Of Questionable Quality

Gulf & Pacific Equities Corp. (CVE:GUF) announced strong profits, but the stock was stagnant. Our analysis suggests that shareholders have noticed something concerning in the numbers.

See our latest analysis for Gulf & Pacific Equities

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Gulf & Pacific Equities' profit received a boost of CA$4.2m in unusual items, over the last year. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And, after all, that's exactly what the accounting terminology implies. Gulf & Pacific Equities had a rather significant contribution from unusual items relative to its profit to December 2021. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Gulf & Pacific Equities.

Our Take On Gulf & Pacific Equities' Profit Performance

As we discussed above, we think the significant positive unusual item makes Gulf & Pacific Equities' earnings a poor guide to its underlying profitability. As a result, we think it may well be the case that Gulf & Pacific Equities' underlying earnings power is lower than its statutory profit. The silver lining is that its EPS growth over the last year has been really wonderful, even if it's not a perfect measure. 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. So while earnings quality is important, it's equally important to consider the risks facing Gulf & Pacific Equities at this point in time. For instance, we've identified 4 warning signs for Gulf & Pacific Equities (2 are potentially serious) you should be familiar with.

This note has only looked at a single factor that sheds light on the nature of Gulf & Pacific Equities' 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. 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.