Plastiblends India's (NSE:PLASTIBLEN) Earnings Are Of Questionable Quality

Despite posting some strong earnings, the market for Plastiblends India Limited's (NSE:PLASTIBLEN) stock hasn't moved much. Our analysis suggests that this might be because shareholders have noticed some concerning underlying factors.

See our latest analysis for Plastiblends India

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Plastiblends India's profit received a boost of ₹30m 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. And, after all, that's exactly what the accounting terminology implies. If Plastiblends India 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 Plastiblends India.

Our Take On Plastiblends India's Profit Performance

Arguably, Plastiblends India's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Plastiblends India's true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 29% 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. Case in point: We've spotted 3 warning signs for Plastiblends India you should be mindful of and 1 of these is significant.

This note has only looked at a single factor that sheds light on the nature of Plastiblends India's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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.

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