There May Be Underlying Issues With The Quality Of Adris grupa d. d's (ZGSE:ADRS) Earnings

Despite posting some strong earnings, the market for Adris grupa d. d.'s (ZGSE:ADRS) stock hasn't moved much. We did some digging, and we found some concerning factors in the details.

Our free stock report includes 1 warning sign investors should be aware of before investing in Adris grupa d. d. Read for free now.

The Power Of Non-Operating Revenue

At most companies, some revenue streams, such as government grants, are accounted for as non-operating revenue, while the core business is said to produce operating revenue. Oftentimes, non-operating revenue spikes are not repeated, so it makes sense to be cautious where non-operating revenue has made a very large contribution to total profit. However, we note that when non-operating revenue increases suddenly, it will sometimes generate an unsustainable boost to profit. Notably, Adris grupa d. d had a significant increase in non-operating revenue over the last year. In fact, our data indicates that non-operating revenue increased from €5.55m to €57.8m. If that non-operating revenue fails to manifest in the current year, then there's a real risk the bottom line profit result will be impacted negatively. In order to better understand a company's profit result, it can sometimes help to consider whether the result would be very different without a sudden increase in non-operating revenue.

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 Adris grupa d. d's Profit Performance

As discussed above, Adris grupa d. d's sharp increase in non-operating revenue boosted its profit over the last year, and if that non-operating revenue is not repeated, then the trailing twelve months profit probably isn't as good as it seems. Because of this, we think that it may be that Adris grupa d. d's statutory profits are better than its underlying earnings power. Nonetheless, it's still worth noting that its earnings per share have grown at 28% 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 Adris grupa d. d at this point in time. You'd be interested to know, that we found 1 warning sign for Adris grupa d. d and you'll want to know about it.

This note has only looked at a single factor that sheds light on the nature of Adris grupa d. d'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 with high insider ownership.

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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.