We Think That There Are Some Issues For Canadian Tire Corporation (TSE:CTC.A) Beyond Its Promising Earnings

The stock price didn't jump after Canadian Tire Corporation, Limited (TSE:CTC.A) posted decent earnings last week. We think that investors might be worried about some concerning underlying factors.

Check out our latest analysis for Canadian Tire Corporation

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Canadian Tire Corporation's profit received a boost of CA$289m in unusual items, over the last year. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. 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'. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

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 Canadian Tire Corporation's Profit Performance

Arguably, Canadian Tire Corporation's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Canadian Tire Corporation's statutory profits are better than its underlying earnings power. The silver lining is that its EPS growth over the last year has been really wonderful, even if it's not a perfect measure. 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 Canadian Tire Corporation, you'd also look into what risks it is currently facing. Every company has risks, and we've spotted 3 warning signs for Canadian Tire Corporation (of which 1 makes us a bit uncomfortable!) you should know about.

Today we've zoomed in on a single data point to better understand the nature of Canadian Tire Corporation'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. 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 with significant insider holdings 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.