Why Kardan Real Estate Enterprise and Development's (TLV:KARE) Shaky Earnings Are Just The Beginning Of Its Problems

Last week's earnings announcement from Kardan Real Estate Enterprise and Development Ltd (TLV:KARE) was disappointing to investors, with a sluggish profit figure. Our analysis has found some reasons to be concerned, beyond the weak headline numbers.

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How Do Unusual Items Influence Profit?

Importantly, our data indicates that Kardan Real Estate Enterprise and Development's profit received a boost of ₪7.1m in unusual items, over the last year. 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 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 that's as you'd expect, given these boosts are described as 'unusual'. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Kardan Real Estate Enterprise and Development.

Our Take On Kardan Real Estate Enterprise and Development's Profit Performance

We'd posit that Kardan Real Estate Enterprise and Development's 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 Kardan Real Estate Enterprise and Development's statutory profits are better than its underlying earnings power. 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. So while earnings quality is important, it's equally important to consider the risks facing Kardan Real Estate Enterprise and Development at this point in time. Our analysis shows 5 warning signs for Kardan Real Estate Enterprise and Development (3 are significant!) and we strongly recommend you look at these before investing.

This note has only looked at a single factor that sheds light on the nature of Kardan Real Estate Enterprise and Development's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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.