Statutory Profit Doesn't Reflect How Good Sonae SGPS' (ELI:SON) Earnings Are

The subdued stock price reaction suggests that Sonae, SGPS, S.A.'s (ELI:SON) strong earnings didn't offer any surprises. Our analysis suggests that investors might be missing some promising details.

Check out our latest analysis for Sonae SGPS

How Do Unusual Items Influence Profit?

To properly understand Sonae SGPS' profit results, we need to consider the €77m expense attributed to unusual items. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's hardly a surprise given these line items are considered unusual. If Sonae SGPS doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

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 Sonae SGPS' Profit Performance

Unusual items (expenses) detracted from Sonae SGPS' earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Sonae SGPS' statutory profit actually understates its earnings potential! Better yet, its EPS are growing strongly, which is nice to see. 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 Sonae SGPS as a business, it's important to be aware of any risks it's facing. Every company has risks, and we've spotted 2 warning signs for Sonae SGPS you should know about.

This note has only looked at a single factor that sheds light on the nature of Sonae SGPS' profit. But there is always more to discover if you are capable of focussing your mind on minutiae. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to 'follow the money' and search out stocks that insiders are buying. 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.