Some Investors May Be Willing To Look Past Marks Electrical Group's (LON:MRK) Soft Earnings

Shareholders appeared unconcerned with Marks Electrical Group PLC's (LON:MRK) lackluster earnings report last week. We did some digging, and we believe the earnings are stronger than they seem.

Our analysis indicates that MRK is potentially undervalued!

How Do Unusual Items Influence Profit?

For anyone who wants to understand Marks Electrical Group's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by UK£2.0m due to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that's exactly what the accounting terminology implies. If Marks Electrical Group doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

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 Marks Electrical Group's Profit Performance

Unusual items (expenses) detracted from Marks Electrical Group's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Marks Electrical Group's statutory profit actually understates its earnings potential! Unfortunately, though, its earnings per share actually fell back over the last year. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. You'd be interested to know, that we found 3 warning signs for Marks Electrical Group and you'll want to know about them.

This note has only looked at a single factor that sheds light on the nature of Marks Electrical 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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

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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.