Shapir Engineering and Industry's (TLV:SPEN) Sluggish Earnings Might Be Just The Beginning Of Its Problems

Shapir Engineering and Industry Ltd's (TLV:SPEN) recent weak earnings report didn't cause a big stock movement. We think that investors are worried about some weaknesses underlying the earnings.

View our latest analysis for Shapir Engineering and Industry

How Do Unusual Items Influence Profit?

For anyone who wants to understand Shapir Engineering and Industry's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from ₪106m worth of unusual items. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that's exactly what the accounting terminology implies. Shapir Engineering and Industry had a rather significant contribution from unusual items relative to its profit to December 2023. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Shapir Engineering and Industry.

Our Take On Shapir Engineering and Industry's Profit Performance

As we discussed above, we think the significant positive unusual item makes Shapir Engineering and Industry's earnings a poor guide to its underlying profitability. As a result, we think it may well be the case that Shapir Engineering and Industry's underlying earnings power is lower than its statutory profit. Sadly, its EPS was down over the last twelve months. 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. Our analysis shows 3 warning signs for Shapir Engineering and Industry (1 is potentially serious!) and we strongly recommend you look at these before investing.

Today we've zoomed in on a single data point to better understand the nature of Shapir Engineering and Industry'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 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.