Is There More To The Story Than Selvaag Bolig's (OB:SBO) Earnings Growth?

As a general rule, we think profitable companies are less risky than companies that lose money. Having said that, sometimes statutory profit levels are not a good guide to ongoing profitability, because some short term one-off factor has impacted profit levels. In this article, we'll look at how useful this year's statutory profit is, when analysing Selvaag Bolig (OB:SBO).

We like the fact that Selvaag Bolig made a profit of kr1.56b on its revenue of kr2.73b, in the last year. The chart below shows how profit has actually increased over the last three years, even while revenue has declined.

Check out our latest analysis for Selvaag Bolig

Importantly, statutory profits are not always the best tool for understanding a company's true earnings power, so it's well worth examining profits in a little more detail. This article will discuss how unusual items have impacted Selvaag Bolig's most recent profit results. 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.

The Impact Of Unusual Items On Profit

For anyone who wants to understand Selvaag Bolig's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from kr1.0b worth of unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And that's as you'd expect, given these boosts are described as 'unusual'. Selvaag Bolig had a rather significant contribution from unusual items relative to its profit to September 2020. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

Our Take On Selvaag Bolig's Profit Performance

As we discussed above, we think the significant positive unusual item makes Selvaag Bolig'searnings a poor guide to its underlying profitability. For this reason, we think that Selvaag Bolig's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. But on the bright side, its earnings per share have grown at an extremely impressive rate over the last three years. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. If you'd like to know more about Selvaag Bolig as a business, it's important to be aware of any risks it's facing. To that end, you should learn about the 4 warning signs we've spotted with Selvaag Bolig (including 1 which is potentially serious).

Today we've zoomed in on a single data point to better understand the nature of Selvaag Bolig'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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

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This article by Simply Wall St is general in nature. 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.
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