ITC's (NSE:ITC) Sluggish Earnings Might Be Just The Beginning Of Its Problems

By
Simply Wall St
Published
July 20, 2021
NSEI:ITC
Source: Shutterstock

ITC Limited's (NSE:ITC) recent weak earnings report didn't cause a big stock movement. However, we believe that investors should be aware of some underlying factors which may be of concern.

See our latest analysis for ITC

earnings-and-revenue-history
NSEI:ITC Earnings and Revenue History July 20th 2021

How Do Unusual Items Influence Profit?

Importantly, our data indicates that ITC's profit received a boost of ₹11b in unusual items, over the last year. 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, after all, that's exactly what the accounting terminology implies. If ITC doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

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 ITC's Profit Performance

Arguably, ITC's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that ITC's statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 16% per annum growth in EPS for the last three. 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. If you'd like to know more about ITC as a business, it's important to be aware of any risks it's facing. At Simply Wall St, we found 1 warning sign for ITC and we think they deserve your attention.

Today we've zoomed in on a single data point to better understand the nature of ITC'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. 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.
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Simply Wall St is focused on providing unbiased, high-quality research coverage on every listed company in the world. Our research team consists of data scientists and multiple equity analysts with over two decades worth of financial markets experience between them.