Corporación Acciona Energías Renovables' (BME:ANE) Anemic Earnings Might Be Worse Than You Think

Corporación Acciona Energías Renovables, S.A.'s (BME:ANE) stock showed strength, with investors undeterred by its weak earnings report. We think that shareholders might be missing some concerning factors that our analysis found.

Check out our latest analysis for Corporación Acciona Energías Renovables

Operating Revenue Or Not?

Most companies divide classify their revenue as either 'operating revenue', which comes from normal operations, and other revenue, which could include government grants, for example. Where possible, we prefer rely on operating revenue to get a better understanding of how the business is functioning. However, we note that when non-operating revenue increases suddenly, it will sometimes generate an unsustainable boost to profit. It's worth noting that Corporación Acciona Energías Renovables saw a big increase in non-operating revenue over the last year. In fact, our data indicates that non-operating revenue increased from €337.0m to €548.0m. If that non-operating revenue fails to manifest in the current year, then there's a real risk the bottom line profit result will be impacted negatively. Sometimes, you can get a better idea of the underlying earnings potential of a company by excluding unusual boosts to non-operating revenue.

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.

The Impact Of Unusual Items On Profit

Alongside that spike in non-operating revenue, it's also important to note that Corporación Acciona Energías Renovables'profit was boosted by unusual items worth €38m in the last twelve months. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. Which is hardly surprising, given the name. If Corporación Acciona Energías Renovables doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Our Take On Corporación Acciona Energías Renovables' Profit Performance

In the last year Corporación Acciona Energías Renovables' non-operating revenue really gave it a boost, but not in a way that is necessarily going to be sustained. And on top of that, it also saw an unusual item boost its profit, suggesting that next year might see a lower profit number, if these events are not repeated and everything else is equal. Considering all this we'd argue Corporación Acciona Energías Renovables' profits probably give an overly generous impression of its sustainable level of profitability. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. Our analysis shows 4 warning signs for Corporación Acciona Energías Renovables (1 is a bit concerning!) and we strongly recommend you look at these before investing.

In this article we've looked at a number of factors that can impair the utility of profit numbers, and we've come away cautious. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com