Manaksia Steels' (NSE:MANAKSTEEL) Sluggish Earnings Might Be Just The Beginning Of Its Problems

A lackluster earnings announcement from Manaksia Steels Limited (NSE:MANAKSTEEL) last week didn't sink the stock price. Our analysis suggests that along with soft profit numbers, investors should be aware of some other underlying weaknesses in the numbers.

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How Do Unusual Items Influence Profit?

Importantly, our data indicates that Manaksia Steels' profit received a boost of ₹33m in unusual items, over the last year. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. Which is hardly surprising, given the name. If Manaksia Steels doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Manaksia Steels.

Our Take On Manaksia Steels' Profit Performance

Arguably, Manaksia Steels' statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Manaksia Steels' true underlying earnings power is actually less than its statutory profit. But the good news is that its EPS growth over the last three years has been very impressive. 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. So while earnings quality is important, it's equally important to consider the risks facing Manaksia Steels at this point in time. In terms of investment risks, we've identified 2 warning signs with Manaksia Steels, and understanding these should be part of your investment process.

Today we've zoomed in on a single data point to better understand the nature of Manaksia Steels' 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. 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.