Sage Group's (LON:SGE) Performance Is Even Better Than Its Earnings Suggest

Investors were underwhelmed by the solid earnings posted by The Sage Group plc (LON:SGE) recently. We did some digging and actually think they are being unnecessarily pessimistic.

View our latest analysis for Sage Group

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Sage Group's profit was reduced by UK£78m, due to unusual items, over the last year. 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 that's hardly a surprise given these line items are considered unusual. If Sage 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 Sage Group's Profit Performance

Because unusual items detracted from Sage Group's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Based on this observation, we consider it likely that Sage Group's statutory profit actually understates its earnings potential! And the EPS is up 23% annually, over the last three years. 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. If you'd like to know more about Sage Group as a business, it's important to be aware of any risks it's facing. Every company has risks, and we've spotted 1 warning sign for Sage Group you should know about.

Today we've zoomed in on a single data point to better understand the nature of Sage 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 with significant insider holdings to be useful.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.