Iberdrola, S.A.'s (BME:IBE) healthy profit numbers didn't contain any surprises for investors. We think this is due to investors looking beyond the statutory profits and being concerned with what they see.
Check out our latest analysis for Iberdrola
The Impact Of Unusual Items On Profit
For anyone who wants to understand Iberdrola's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from €1.5b worth of unusual items. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. 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 Iberdrola's Profit Performance
Arguably, Iberdrola's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Iberdrola's true underlying earnings power is actually less than its statutory profit. But on the bright side, its earnings per share have grown at an extremely impressive rate over the last three years. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. So while earnings quality is important, it's equally important to consider the risks facing Iberdrola at this point in time. For instance, we've identified 3 warning signs for Iberdrola (1 doesn't sit too well with us) you should be familiar with.
Today we've zoomed in on a single data point to better understand the nature of Iberdrola'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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com
About BME:IBE
Iberdrola
Engages in the generation, transmission, distribution, and supply of electricity in Spain, the United Kingdom, the United States, Mexico, Brazil, Germany, France, and Australia.
Solid track record with mediocre balance sheet.
