The Strong Earnings Posted By Solid State (LON:SOLI) Are A Good Indication Of The Strength Of The Business

The subdued stock price reaction suggests that Solid State plc's (LON:SOLI) strong earnings didn't offer any surprises. Investors are probably missing some underlying factors which are encouraging for the future of the company.

See our latest analysis for Solid State

How Do Unusual Items Influence Profit?

To properly understand Solid State's profit results, we need to consider the UK£2.8m expense attributed to unusual items. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. 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 Solid State 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 Solid State's Profit Performance

Because unusual items detracted from Solid State'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 Solid State's statutory profit actually understates its earnings potential! And on top of that, its earnings per share have grown at 68% per year over the last three years. 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. If you want to do dive deeper into Solid State, you'd also look into what risks it is currently facing. Case in point: We've spotted 1 warning sign for Solid State you should be aware of.

This note has only looked at a single factor that sheds light on the nature of Solid State'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.

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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.

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