Monte Carlo Fashions (NSE:MONTECARLO) Posted Healthy Earnings But There Are Some Other Factors To Be Aware Of

Unsurprisingly, Monte Carlo Fashions Limited's (NSE:MONTECARLO) stock price was strong on the back of its healthy earnings report. We did some analysis and think that investors are missing some details hidden beneath the profit numbers.

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The Impact Of Unusual Items On Profit

To properly understand Monte Carlo Fashions' profit results, we need to consider the ₹102m gain attributed to unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. 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 Monte Carlo Fashions.

Our Take On Monte Carlo Fashions' Profit Performance

We'd posit that Monte Carlo Fashions' statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Because of this, we think that it may be that Monte Carlo Fashions' statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 66% EPS growth in the last year. 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Case in point: We've spotted 2 warning signs for Monte Carlo Fashions you should be mindful of and 1 of them shouldn't be ignored.

This note has only looked at a single factor that sheds light on the nature of Monte Carlo Fashions' 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.