Shareholders Shouldn’t Be Too Comfortable With Blue Square Real Estate's (TLV:BLSR) Strong Earnings

We didn't see Blue Square Real Estate Ltd's (TLV:BLSR) stock surge when it reported robust earnings recently. We looked deeper into the numbers and found that shareholders might be concerned with some underlying weaknesses.

View our latest analysis for Blue Square Real Estate

Operating Revenue Or Not?

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. Importantly, the non-operating revenue often comes without associated ongoing costs, so it can boost profit by letting it fall straight to the bottom line, making the operating business seem better than it really is. Notably, Blue Square Real Estate had a significant increase in non-operating revenue over the last year. Indeed, its non-operating revenue rose from ₪98.3m last year to ₪205.2m this year. The high levels of non-operating revenue are problematic because if (and when) they do not repeat, then overall revenue (and profitability) of the firm will fall. Sometimes, you can get a better idea of the underlying earnings potential of a company by excluding unusual boosts to non-operating revenue.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Blue Square Real Estate.

The Impact Of Unusual Items On Profit

Alongside that spike in non-operating revenue, it's also important to note that Blue Square Real Estate'sprofit was boosted by unusual items worth ₪638m in the last twelve months. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. Which is hardly surprising, given the name. Blue Square Real Estate had a rather significant contribution from unusual items relative to its profit to March 2024. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

Our Take On Blue Square Real Estate's Profit Performance

In the last year Blue Square Real Estate's non-operating revenue really gave it a boost, but not in a way that is necessarily going to be sustained. Furthermore, unusual items also made a nice positive contribution to its profit, which may well drop next year (all else being equal) if these phenomena are not repeated. On reflection, the above-mentioned factors give us the strong impression that Blue Square Real Estate'sunderlying earnings power is not as good as it might seem, based on the statutory profit numbers. If you'd like to know more about Blue Square Real Estate as a business, it's important to be aware of any risks it's facing. To that end, you should learn about the 3 warning signs we've spotted with Blue Square Real Estate (including 1 which is concerning).

In this article we've looked at a number of factors that can impair the utility of profit numbers, and we've come away cautious. 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.