Weak Statutory Earnings May Not Tell The Whole Story For IMS (WSE:IMS)

A lackluster earnings announcement from IMS S.A. (WSE:IMS) last week didn't sink the stock price. However, we believe that investors should be aware of some underlying factors which may be of concern.

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How Do Unusual Items Influence Profit?

To properly understand IMS' profit results, we need to consider the zł1.1m 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. And that's as you'd expect, given these boosts are described as 'unusual'. 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 IMS' Profit Performance

Arguably, IMS' statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that IMS' true underlying earnings power is actually less than its statutory profit. In further bad news, its earnings per share decreased in the 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'd like to know more about IMS as a business, it's important to be aware of any risks it's facing. In terms of investment risks, we've identified 3 warning signs with IMS, and understanding these should be part of your investment process.

This note has only looked at a single factor that sheds light on the nature of IMS' 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 with significant insider holdings 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.