We Think Snam's (BIT:SRG) Healthy Earnings Might Be Conservative

The market seemed underwhelmed by the solid earnings posted by Snam S.p.A. (BIT:SRG) recently. Our analysis suggests that there are some reasons for hope that investors should be aware of.

View our latest analysis for Snam

The Impact Of Unusual Items On Profit

For anyone who wants to understand Snam's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by €233m 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. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that's exactly what the accounting terminology implies. If Snam 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 Snam's Profit Performance

Unusual items (expenses) detracted from Snam's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Snam's statutory profit actually understates its earnings potential! And the EPS is up 14% over the last twelve months. 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. In terms of investment risks, we've identified 2 warning signs with Snam, and understanding them should be part of your investment process.

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