Huhtamäki Oyj (HEL:HUH1V) Strong Profits May Be Masking Some Underlying Issues

Huhtamäki Oyj (HEL:HUH1V) just released a solid earnings report, and the stock displayed some strength. Despite this, our analysis suggests that there are some factors weakening the foundations of those good profit numbers.

View our latest analysis for Huhtamäki Oyj

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Huhtamäki Oyj's profit received a boost of €42m in unusual items, over the last year. 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 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. 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 Huhtamäki Oyj's Profit Performance

Arguably, Huhtamäki Oyj's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Huhtamäki Oyj's true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 44% per annum growth in EPS for the last three. 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. 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. In terms of investment risks, we've identified 1 warning sign with Huhtamäki Oyj, and understanding this should be part of your investment process.

This note has only looked at a single factor that sheds light on the nature of Huhtamäki Oyj's profit. But there are plenty of other ways to inform your opinion of a company. 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.