Dorsel Holdings' (TLV:DRSH) Anemic Earnings Might Be Worse Than You Think

Dorsel Holdings Ltd's (TLV:DRSH) stock showed strength, with investors undeterred by its weak earnings report. We think that shareholders might be missing some concerning factors that our analysis found.

View our latest analysis for Dorsel Holdings

The Impact Of Unusual Items On Profit

For anyone who wants to understand Dorsel Holdings' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from ₪5.6m 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 crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. And, after all, that's exactly what the accounting terminology implies. If Dorsel Holdings 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 Dorsel Holdings.

Our Take On Dorsel Holdings' Profit Performance

We'd posit that Dorsel Holdings' statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Because of this, we think that it may be that Dorsel Holdings' statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 61% per annum growth in EPS for the last three. 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 Dorsel Holdings at this point in time. Case in point: We've spotted 4 warning signs for Dorsel Holdings you should be mindful of and 1 of these is a bit concerning.

Today we've zoomed in on a single data point to better understand the nature of Dorsel Holdings' 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 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.