Investors Shouldn't Be Too Comfortable With Mota-Engil SGPS' (ELI:EGL) Earnings

Last week's profit announcement from Mota-Engil, SGPS, S.A. (ELI:EGL) was underwhelming for investors, despite headline numbers being robust. We did some digging and found some worrying underlying problems.

See our latest analysis for Mota-Engil SGPS

How Do Unusual Items Influence Profit?

For anyone who wants to understand Mota-Engil SGPS' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from €114m worth of unusual items. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. 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. And that's as you'd expect, given these boosts are described as 'unusual'. We can see that Mota-Engil SGPS' positive unusual items were quite significant relative to its profit in the year to June 2024. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

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 Mota-Engil SGPS' Profit Performance

As we discussed above, we think the significant positive unusual item makes Mota-Engil SGPS' earnings a poor guide to its underlying profitability. As a result, we think it may well be the case that Mota-Engil SGPS' underlying earnings power is lower than its statutory profit. The silver lining is that its EPS growth over the last year has been really wonderful, even if it's not a perfect measure. 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. So while earnings quality is important, it's equally important to consider the risks facing Mota-Engil SGPS at this point in time. Case in point: We've spotted 3 warning signs for Mota-Engil SGPS you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Mota-Engil SGPS' profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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.