Earnings Troubles May Signal Larger Issues for Kaveri Seed (NSE:KSCL) Shareholders

The market wasn't impressed with the soft earnings from Kaveri Seed Company Limited (NSE:KSCL) recently. Our analysis has found some reasons to be concerned, beyond the weak headline numbers.

Check out our latest analysis for Kaveri Seed

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Kaveri Seed's profit received a boost of ₹593m 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. Which is hardly surprising, given the name. If Kaveri Seed 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 Kaveri Seed's Profit Performance

Arguably, Kaveri Seed's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Kaveri Seed's true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 63% per annum growth in EPS for the last three. 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 Kaveri Seed, you'd also look into what risks it is currently facing. In terms of investment risks, we've identified 2 warning signs with Kaveri Seed, and understanding these should be part of your investment process.

This note has only looked at a single factor that sheds light on the nature of Kaveri Seed'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 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.