Shradha Infraprojects' (NSE:SHRADHA) Weak Earnings May Only Reveal A Part Of The Whole Picture

The market wasn't impressed with the soft earnings from Shradha Infraprojects Limited (NSE:SHRADHA) recently. Our analysis has found some reasons to be concerned, beyond the weak headline numbers.

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The Impact Of Unusual Items On Profit

To properly understand Shradha Infraprojects' profit results, we need to consider the ₹46m gain attributed to 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 Shradha Infraprojects.

Our Take On Shradha Infraprojects' Profit Performance

Arguably, Shradha Infraprojects' statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Shradha Infraprojects' 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. For instance, we've identified 4 warning signs for Shradha Infraprojects (2 shouldn't be ignored) you should be familiar with.

This note has only looked at a single factor that sheds light on the nature of Shradha Infraprojects' profit. But there are plenty of other ways to inform your opinion of a company. 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 with significant insider holdings 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.