RoodMicrotec's (AMS:ROOD) Earnings Are Weaker Than They Seem

Despite posting some strong earnings, the market for RoodMicrotec N.V.'s (AMS:ROOD) stock hasn't moved much. Our analysis suggests that this might be because shareholders have noticed some concerning underlying factors.

Check out our latest analysis for RoodMicrotec

An Unusual Tax Situation

RoodMicrotec reported a tax benefit of €98k, which is well worth noting. This is meaningful because companies usually pay tax rather than receive tax benefits. Of course, prima facie it's great to receive a tax benefit. And since it previously lost money, it may well simply indicate the realisation of past tax losses. However, our data indicates that tax benefits can temporarily boost statutory profit in the year it is booked, but subsequently profit may fall back. In the likely event the tax benefit is not repeated, we'd expect to see its statutory profit levels drop, at least in the absence of strong growth. So while we think it's great to receive a tax benefit, it does tend to imply an increased risk that the statutory profit overstates the sustainable earnings power of the business.

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

Our Take On RoodMicrotec's Profit Performance

RoodMicrotec reported that it received a tax benefit, rather than paid tax, in its last report. As a result we don't think its profit result, which includes that tax-boost, is a good guide to its sustainable profit levels. Because of this, we think that it may be that RoodMicrotec's statutory profits are better than its underlying earnings power. The good news is that it earned a profit in the last twelve months, despite its previous loss. 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. If you want to do dive deeper into RoodMicrotec, you'd also look into what risks it is currently facing. For example - RoodMicrotec has 2 warning signs we think you should be aware of.

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