Datamatics Global Services' (NSE:DATAMATICS) Solid Earnings May Rest On Weak Foundations

Datamatics Global Services Limited's (NSE:DATAMATICS ) stock didn't jump after it announced some healthy earnings. We think that investors might be worried about some concerning underlying factors.

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The Impact Of Unusual Items On Profit

Importantly, our data indicates that Datamatics Global Services' profit received a boost of ₹316m in unusual items, over the last year. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. 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).

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

Our Take On Datamatics Global Services' Profit Performance

Arguably, Datamatics Global Services' statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Datamatics Global Services' statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 30% 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 while earnings quality is important, it's equally important to consider the risks facing Datamatics Global Services at this point in time. In terms of investment risks, we've identified 2 warning signs with Datamatics Global Services, and understanding these should be part of your investment process.

Today we've zoomed in on a single data point to better understand the nature of Datamatics Global Services' 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 with significant insider holdings 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.