Investors Can Find Comfort In Scandinavian Tobacco Group's (CPH:STG) Earnings Quality

By
Simply Wall St
Published
March 18, 2021
CPSE:STG

The market for Scandinavian Tobacco Group A/S' (CPH:STG) shares didn't move much after it posted weak earnings recently. We think that the softer headline numbers might be getting counterbalanced by some positive underlying factors.

See our latest analysis for Scandinavian Tobacco Group

earnings-and-revenue-history
CPSE:STG Earnings and Revenue History March 19th 2021

The Impact Of Unusual Items On Profit

For anyone who wants to understand Scandinavian Tobacco Group's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by kr.435m due to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's hardly a surprise given these line items are considered unusual. Assuming those unusual expenses don't come up again, we'd therefore expect Scandinavian Tobacco Group to produce a higher profit next year, all else being equal.

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 Scandinavian Tobacco Group's Profit Performance

Because unusual items detracted from Scandinavian Tobacco Group's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Because of this, we think Scandinavian Tobacco Group's earnings potential is at least as good as it seems, and maybe even better! Unfortunately, though, its earnings per share actually fell back over the 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Every company has risks, and we've spotted 2 warning signs for Scandinavian Tobacco Group you should know about.

Today we've zoomed in on a single data point to better understand the nature of Scandinavian Tobacco Group'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 that insiders are buying to be useful.

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This article by Simply Wall St is general in nature. 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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