Delek Automotive Systems' (TLV:DLEA) Shareholders Have More To Worry About Than Only Soft Earnings

A lackluster earnings announcement from Delek Automotive Systems Ltd (TLV:DLEA) 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.

Check out our latest analysis for Delek Automotive Systems

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Delek Automotive Systems' profit received a boost of ₪87m 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 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. 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 Delek Automotive Systems.

Our Take On Delek Automotive Systems' Profit Performance

Arguably, Delek Automotive Systems' statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Delek Automotive Systems' true underlying earnings power is actually less than its statutory profit. In further bad news, its earnings per share decreased in the last year. 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 Delek Automotive Systems at this point in time. For instance, we've identified 5 warning signs for Delek Automotive Systems (2 are significant) you should be familiar with.

Today we've zoomed in on a single data point to better understand the nature of Delek Automotive Systems' 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. 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.