Shaniv Paper Industry's (TLV:SHAN) Sluggish Earnings Might Be Just The Beginning Of Its Problems

A lackluster earnings announcement from Shaniv Paper Industry Ltd (TLV:SHAN) last week didn't sink the stock price. However, we believe that investors should be aware of some underlying factors which may be of concern.

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How Do Unusual Items Influence Profit?

For anyone who wants to understand Shaniv Paper Industry's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from ₪6.6m worth of unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. 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. If Shaniv Paper Industry doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

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

Our Take On Shaniv Paper Industry's Profit Performance

Arguably, Shaniv Paper Industry's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Shaniv Paper Industry's statutory profits are better than its underlying earnings power. Nonetheless, it's still worth noting that its earnings per share have grown at 23% 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. Be aware that Shaniv Paper Industry is showing 4 warning signs in our investment analysis and 2 of those are potentially serious...

This note has only looked at a single factor that sheds light on the nature of Shaniv Paper Industry's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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.