Impressive Earnings May Not Tell The Whole Story For Almendral (SNSE:ALMENDRAL)

Despite announcing strong earnings, Almendral S.A.'s (SNSE:ALMENDRAL) stock was sluggish. We did some digging and found some worrying underlying problems.

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An Unusual Tax Situation

Almendral reported a tax benefit of CL$16b, which is well worth noting. It's always a bit noteworthy when a company is paid by the tax man, rather than paying the tax man. The receipt of a tax benefit is obviously a good thing, on its own. However, our data indicates that tax benefits can temporarily boost statutory profit in the year it is booked, but subsequently profit may fall back. Assuming the tax benefit is not repeated every year, we could see its profitability drop noticeably, all else being equal. So while we think it's great to receive a tax benefit, it does tend to imply an increased risk that the statutory profit overstates the sustainable earnings power of the business.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Almendral.

Our Take On Almendral's Profit Performance

Almendral reported that it received a tax benefit, rather than paid tax, in its last report. Given that sort of benefit is not recurring, a focus on the statutory profit might make the company seem better than it really is. Because of this, we think that it may be that Almendral's statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 65% EPS growth in the 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 Almendral as a business, it's important to be aware of any risks it's facing. For example, Almendral has 2 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.

Today we've zoomed in on a single data point to better understand the nature of Almendral's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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 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.