We Think WH Smith's (LON:SMWH) Robust Earnings Are Conservative

The subdued stock price reaction suggests that WH Smith PLC's (LON:SMWH) strong earnings didn't offer any surprises. Our analysis suggests that investors might be missing some promising details.

Check out our latest analysis for WH Smith

The Impact Of Unusual Items On Profit

Importantly, our data indicates that WH Smith's profit was reduced by UK£18m, 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. If WH Smith 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 WH Smith's Profit Performance

Because unusual items detracted from WH Smith's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Because of this, we think WH Smith's earnings potential is at least as good as it seems, and maybe even better! And on top of that, its earnings per share increased by 68% 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. For example - WH Smith has 1 warning sign we think you should be aware of.

This note has only looked at a single factor that sheds light on the nature of WH Smith's profit. But there are plenty of other ways to inform your opinion of a company. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to 'follow the money' and search out stocks that insiders are buying. 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.