Shareholders appeared unconcerned with Frasers Group Plc's (LON:FRAS) lackluster earnings report last week. Our analysis suggests that while the profits are soft, the foundations of the business are strong.
The Impact Of Unusual Items On Profit
Importantly, our data indicates that Frasers Group's profit was reduced by UK£115m, due to unusual items, over the last year. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's hardly a surprise given these line items are considered unusual. Assuming those unusual expenses don't come up again, we'd therefore expect Frasers Group to produce a higher profit next year, all else being equal.
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 Frasers Group's Profit Performance
Unusual items (expenses) detracted from Frasers Group's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Frasers Group's statutory profit actually understates its earnings potential! And on top of that, its earnings per share have grown at 24% per year 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 Frasers Group at this point in time. You'd be interested to know, that we found 2 warning signs for Frasers 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 Frasers 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 with high insider ownership.
Valuation is complex, but we're here to simplify it.
Discover if Frasers Group might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.
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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.