Impressive Earnings May Not Tell The Whole Story For Mercor (WSE:MCR)

Despite posting some strong earnings, the market for Mercor S.A.'s (WSE:MCR) stock hasn't moved much. Our analysis suggests that shareholders have noticed something concerning in the numbers.

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An Unusual Tax Situation

We can see that Mercor received a tax benefit of zł19m. This is of course a bit out of the ordinary, given it is more common for companies to be paying tax than receiving tax benefits! We're sure the company was pleased with its tax benefit. However, our data indicates that tax benefits can temporarily boost statutory profit in the year it is booked, but subsequently profit may fall back. Assuming the tax benefit is not repeated every year, we could see its profitability drop noticeably, all else being equal.

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

Our Take On Mercor's Profit Performance

In its most recent report, Mercor disclosed a tax benefit, as we discussed above. Tax is usually an expense, not a benefit, so we don't think the reported profit number is a particularly good guide to the earning potential of the business. As a result, we think it may well be the case that Mercor's underlying earnings power is lower than its statutory profit. But at least holders can take some solace from the 8.5% EPS growth in the last year. 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 want to do dive deeper into Mercor, you'd also look into what risks it is currently facing. While conducting our analysis, we found that Mercor has 3 warning signs and it would be unwise to ignore them.

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