Should You Rely On SimplyBiz Group's (LON:SBIZ) Earnings Growth?

As a general rule, we think profitable companies are less risky than companies that lose money. However, sometimes companies receive a one-off boost (or reduction) to their profit, and it's not always clear whether statutory profits are a good guide, going forward. This article will consider whether SimplyBiz Group's (LON:SBIZ) statutory profits are a good guide to its underlying earnings.

While SimplyBiz Group was able to generate revenue of UK£62.6m in the last twelve months, we think its profit result of UK£9.84m was more important. One positive is that it has grown both its profit and its revenue, over the last few years.

See our latest analysis for SimplyBiz Group

Importantly, statutory profits are not always the best tool for understanding a company's true earnings power, so it's well worth examining profits in a little more detail. This article will focus on the impact unusual items have had on SimplyBiz Group's statutory earnings. 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.

How Do Unusual Items Influence Profit?

For anyone who wants to understand SimplyBiz Group's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from UK£988k worth of unusual items. 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 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).

Our Take On SimplyBiz Group's Profit Performance

Arguably, SimplyBiz Group's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that SimplyBiz Group's statutory profits are better than its underlying earnings power. The good news is that, its earnings per share increased by 39% in the last year. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. For example - SimplyBiz Group has 2 warning signs we think you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of SimplyBiz Group'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.

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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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