Hipermarc's (SNSE:HIPERMARC) Earnings Are Of Questionable Quality

Hipermarc S.A.'s (SNSE:HIPERMARC) robust earnings report didn't manage to move the market for its stock. Our analysis suggests that this might be because shareholders have noticed some concerning underlying factors.

See our latest analysis for Hipermarc

How Do Unusual Items Influence Profit?

To properly understand Hipermarc's profit results, we need to consider the CL$2.6b 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, after all, that's exactly what the accounting terminology implies. We can see that Hipermarc's positive unusual items were quite significant relative to its profit in the year to June 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 Hipermarc.

Our Take On Hipermarc's Profit Performance

As we discussed above, we think the significant positive unusual item makes Hipermarc's earnings a poor guide to its underlying profitability. As a result, we think it may well be the case that Hipermarc's 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. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. If you'd like to know more about Hipermarc as a business, it's important to be aware of any risks it's facing. Every company has risks, and we've spotted 3 warning signs for Hipermarc (of which 2 are a bit concerning!) you should know about.

Today we've zoomed in on a single data point to better understand the nature of Hipermarc's 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. 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.
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