CI Systems (Israel)'s (TLV:CISY) Shareholders Have More To Worry About Than Only Soft Earnings

Despite CI Systems (Israel) Ltd.'s (TLV:CISY) recent earnings report having lackluster headline numbers, the market responded positively. While shareholders may be willing to overlook soft profit numbers, we believe that they should also be taking into account some other factors which may be cause for concern.

Check out our latest analysis for CI Systems (Israel)

How Do Unusual Items Influence Profit?

For anyone who wants to understand CI Systems (Israel)'s profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from US$123k worth of unusual items. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. 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. 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 CI Systems (Israel).

Our Take On CI Systems (Israel)'s Profit Performance

Arguably, CI Systems (Israel)'s statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that CI Systems (Israel)'s statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 20% per annum growth in EPS for the last three. 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 if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. Case in point: We've spotted 3 warning signs for CI Systems (Israel) you should be mindful of and 1 of these doesn't sit too well with us.

This note has only looked at a single factor that sheds light on the nature of CI Systems (Israel)'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 that insiders are buying 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.