Pritika Auto Industries' (NSE:PRITIKAUTO) Profits Appear To Have Quality Issues

The market shrugged off Pritika Auto Industries Limited's (NSE:PRITIKAUTO) solid earnings report. Our analysis showed that there are some concerning factors in the earnings that investors may be cautious of.

Check out our latest analysis for Pritika Auto Industries

The Impact Of Unusual Items On Profit

To properly understand Pritika Auto Industries' profit results, we need to consider the ₹66m gain attributed to 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 analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. 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 Pritika Auto Industries.

Our Take On Pritika Auto Industries' Profit Performance

Arguably, Pritika Auto Industries' statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Pritika Auto Industries' true underlying earnings power is actually less than its statutory profit. Nonetheless, it's still worth noting that its earnings per share have grown at 43% over the last three years. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. If you want to do dive deeper into Pritika Auto Industries, you'd also look into what risks it is currently facing. In terms of investment risks, we've identified 4 warning signs with Pritika Auto Industries, and understanding them should be part of your investment process.

This note has only looked at a single factor that sheds light on the nature of Pritika Auto Industries' profit. But there are plenty of other ways to inform your opinion of a company. 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. 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.