Parag Milk Foods (NSE:PARAGMILK) Posted Healthy Earnings But There Are Some Other Factors To Be Aware Of

Parag Milk Foods Limited (NSE:PARAGMILK) announced strong profits, but the stock was stagnant. Our analysis suggests that this might be because shareholders have noticed some concerning underlying factors.

See our latest analysis for Parag Milk Foods

How Do Unusual Items Influence Profit?

To properly understand Parag Milk Foods' profit results, we need to consider the ₹166m gain attributed to unusual items. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. 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 Parag Milk Foods 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 Parag Milk Foods' Profit Performance

We'd posit that Parag Milk Foods' statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Therefore, it seems possible to us that Parag Milk Foods' true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 26% 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. So while earnings quality is important, it's equally important to consider the risks facing Parag Milk Foods at this point in time. At Simply Wall St, we found 1 warning sign for Parag Milk Foods and we think they deserve your attention.

Today we've zoomed in on a single data point to better understand the nature of Parag Milk Foods' 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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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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.