Patel Engineering's (NSE:PATELENG) Soft Earnings Don't Show The Whole Picture

Soft earnings didn't appear to concern Patel Engineering Limited's (NSE:PATELENG) shareholders over the last week. Our analysis suggests that while the profits are soft, the foundations of the business are strong.

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The Impact Of Unusual Items On Profit

Importantly, our data indicates that Patel Engineering's profit was reduced by ₹1.8b, due to unusual items, over the last year. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's hardly a surprise given these line items are considered unusual. Assuming those unusual expenses don't come up again, we'd therefore expect Patel Engineering to produce a higher profit next year, all else being equal.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Patel Engineering.

Our Take On Patel Engineering's Profit Performance

Because unusual items detracted from Patel Engineering's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Based on this observation, we consider it likely that Patel Engineering's statutory profit actually understates its earnings potential! And the EPS is up 19% annually, over the last three years. 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 Patel Engineering at this point in time. For example, we've discovered 1 warning sign that you should run your eye over to get a better picture of Patel Engineering.

This note has only looked at a single factor that sheds light on the nature of Patel Engineering's 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.