Grupa LOTOS' (WSE:LTS) Solid Earnings May Rest On Weak Foundations

Grupa LOTOS S.A. (WSE:LTS) just released a solid earnings report, and the stock displayed some strength. Despite this, our analysis suggests that there are some factors weakening the foundations of those good profit numbers.

See our latest analysis for Grupa LOTOS

How Do Unusual Items Influence Profit?

For anyone who wants to understand Grupa LOTOS' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from zł91m worth of 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 crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. Which is hardly surprising, given the name. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

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 Grupa LOTOS' Profit Performance

Arguably, Grupa LOTOS' statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Grupa LOTOS' 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. 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. So while earnings quality is important, it's equally important to consider the risks facing Grupa LOTOS at this point in time. For example - Grupa LOTOS has 1 warning sign we think you should be aware of.

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