AgroGeneration's (EPA:ALAGR) Earnings Are Weaker Than They Seem

Investors were disappointed with AgroGeneration SA's (EPA:ALAGR) earnings, despite the strong profit numbers. We did some digging and found some worrying underlying problems.

See our latest analysis for AgroGeneration

The Impact Of Unusual Items On Profit

To properly understand AgroGeneration's profit results, we need to consider the €8.6m gain attributed to unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. 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, after all, that's exactly what the accounting terminology implies. AgroGeneration had a rather significant contribution from unusual items relative to its profit to June 2021. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

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

Our Take On AgroGeneration's Profit Performance

As previously mentioned, AgroGeneration's large boost from unusual items won't be there indefinitely, so its statutory earnings are probably a poor guide to its underlying profitability. For this reason, we think that AgroGeneration's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. The good news is that it earned a profit in the last twelve months, despite its previous loss. 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 AgroGeneration at this point in time. Case in point: We've spotted 3 warning signs for AgroGeneration you should be aware of.

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

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.

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