We Think Telecom Italia's (BIT:TIT) Solid Earnings Are Understated

The market seemed underwhelmed by last week's earnings announcement from Telecom Italia S.p.A. (BIT:TIT) despite the healthy numbers. We did some analysis to find out why and believe that investors might be missing some encouraging factors contained in the earnings.

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How Do Unusual Items Influence Profit?

For anyone who wants to understand Telecom Italia's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by €228m due to unusual items. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And, after all, that's exactly what the accounting terminology implies. If Telecom Italia doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

Our Take On Telecom Italia's Profit Performance

Unusual items (expenses) detracted from Telecom Italia's earnings over the last year, but we might see an improvement next year. Because of this, we think Telecom Italia's earnings potential is at least as good as it seems, and maybe even better! And one can definitely find a positive in the fact that it made a profit this year, despite losing money last year. 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. For instance, we've identified 2 warning signs for Telecom Italia (1 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 Telecom Italia's 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. 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.