SMS Lifesciences India's (NSE:SMSLIFE) Solid Profits Have Weak Fundamentals

By
Simply Wall St
Published
November 23, 2021
NSEI:SMSLIFE
Source: Shutterstock

Despite posting some strong earnings, the market for SMS Lifesciences India Limited's (NSE:SMSLIFE) stock hasn't moved much. We did some digging, and we found some concerning factors in the details.

See our latest analysis for SMS Lifesciences India

earnings-and-revenue-history
NSEI:SMSLIFE Earnings and Revenue History November 24th 2021

The Impact Of Unusual Items On Profit

To properly understand SMS Lifesciences India's profit results, we need to consider the ₹78m gain attributed to unusual items. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. 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. We can see that SMS Lifesciences India's positive unusual items were quite significant relative to its profit in the year to September 2021. 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 SMS Lifesciences India.

Our Take On SMS Lifesciences India's Profit Performance

As previously mentioned, SMS Lifesciences India's large boost from unusual items won't be there indefinitely, so its statutory earnings are probably a poor guide to its underlying profitability. For this reason, we think that SMS Lifesciences India's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. But the good news is that its EPS growth over the last three years has been very impressive. 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. At Simply Wall St, we found 3 warning signs for SMS Lifesciences India and we think they deserve your attention.

This note has only looked at a single factor that sheds light on the nature of SMS Lifesciences 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. 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.

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.

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Simply Wall St

Simply Wall St is focused on providing unbiased, high-quality research coverage on every listed company in the world. Our research team consists of data scientists and multiple equity analysts with over two decades worth of financial markets experience between them.