There May Be Underlying Issues With The Quality Of Gandhi Special Tubes' (NSE:GANDHITUBE) Earnings

Gandhi Special Tubes Limited (NSE:GANDHITUBE) announced strong profits, but the stock was stagnant. Our analysis suggests that shareholders have noticed something concerning in the numbers.

View our latest analysis for Gandhi Special Tubes

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Gandhi Special Tubes' profit received a boost of ₹93m 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 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. Which is hardly surprising, given the name. 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 Gandhi Special Tubes.

Our Take On Gandhi Special Tubes' Profit Performance

We'd posit that Gandhi Special Tubes' 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 Gandhi Special Tubes' statutory profits are better than its underlying earnings power. Nonetheless, it's still worth noting that its earnings per share have grown at 63% over the last three years. 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. While earnings are important, another area to consider is the balance sheet. We've done some analysis and you can see our take on Gandhi Special Tubes' balance sheet by clicking here.

This note has only looked at a single factor that sheds light on the nature of Gandhi Special Tubes' 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.

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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.

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