We Think That There Are Issues Underlying AX Real Estate's (MTSE:AXR) Earnings

Investors were disappointed with AX Real Estate p.l.c.'s (MTSE:AXR) earnings, despite the strong profit numbers. We did some digging and found some worrying underlying problems.

Check out our latest analysis for AX Real Estate

The Impact Of Unusual Items On Profit

To properly understand AX Real Estate's profit results, we need to consider the €2.8m gain attributed to unusual items. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. Which is hardly surprising, given the name. AX Real Estate had a rather significant contribution from unusual items relative to its profit to October 2022. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of AX Real Estate.

Our Take On AX Real Estate's Profit Performance

As we discussed above, we think the significant positive unusual item makes AX Real Estate's earnings a poor guide to its underlying profitability. As a result, we think it may well be the case that AX Real Estate's underlying earnings power is lower than its statutory profit. On the bright side, the company showed enough improvement to book a profit this year, after losing money last year. 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. If you want to do dive deeper into AX Real Estate, you'd also look into what risks it is currently facing. For instance, we've identified 3 warning signs for AX Real Estate (2 are potentially serious) you should be familiar with.

This note has only looked at a single factor that sheds light on the nature of AX Real Estate's profit. But there are plenty of other ways to inform your opinion of a company. Some people consider a high return on equity to be a good sign of a quality business. 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.

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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.