Solid Earnings May Not Tell The Whole Story For Windlas Biotech (NSE:WINDLAS)

The market shrugged off Windlas Biotech Limited's (NSE:WINDLAS) solid earnings report. We think that investors might be worried about some concerning underlying factors.

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The Impact Of Unusual Items On Profit

For anyone who wants to understand Windlas Biotech's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from ₹151m worth of unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. 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. 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 Windlas Biotech.

Our Take On Windlas Biotech's Profit Performance

Arguably, Windlas Biotech's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Windlas Biotech's statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 55% per annum growth in EPS for the last three. 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. 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 1 warning sign for Windlas Biotech you should be aware of.

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