We Think That There Are Some Issues For United Nilgiri Tea Estates (NSE:UNITEDTEA) Beyond Its Promising Earnings

The United Nilgiri Tea Estates Company Limited's (NSE:UNITEDTEA) robust recent earnings didn't do much to move the stock. We think this is due to investors looking beyond the statutory profits and being concerned with what they see.

See our latest analysis for United Nilgiri Tea Estates

The Impact Of Unusual Items On Profit

To properly understand United Nilgiri Tea Estates' profit results, we need to consider the ₹71m 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 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, after all, that's exactly what the accounting terminology implies. We can see that United Nilgiri Tea Estates' positive unusual items were quite significant relative to its profit in the year to September 2024. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of United Nilgiri Tea Estates.

Our Take On United Nilgiri Tea Estates' Profit Performance

As we discussed above, we think the significant positive unusual item makes United Nilgiri Tea Estates' earnings a poor guide to its underlying profitability. As a result, we think it may well be the case that United Nilgiri Tea Estates' underlying earnings power is lower than its statutory profit. But at least holders can take some solace from the 37% 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. If you want to do dive deeper into United Nilgiri Tea Estates, you'd also look into what risks it is currently facing. While conducting our analysis, we found that United Nilgiri Tea Estates has 2 warning signs and it would be unwise to ignore these bad boys.

Today we've zoomed in on a single data point to better understand the nature of United Nilgiri Tea Estates' 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. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.