Sonaecom S.G.P.S' (ELI:SNC) Solid Earnings May Rest On Weak Foundations

The recent earnings posted by Sonaecom, S.G.P.S., S.A. (ELI:SNC) were solid, but the stock didn't move as much as we expected. We think this is due to investors looking beyond the statutory profits and being concerned with what they see.

View our latest analysis for Sonaecom S.G.P.S

The Impact Of Unusual Items On Profit

For anyone who wants to understand Sonaecom S.G.P.S' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from €23m worth of unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. Which is hardly surprising, given the name. We can see that Sonaecom S.G.P.S' positive unusual items were quite significant relative to its profit in the year to December 2020. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Sonaecom S.G.P.S.

Our Take On Sonaecom S.G.P.S' Profit Performance

As we discussed above, we think the significant positive unusual item makes Sonaecom S.G.P.S' earnings a poor guide to its underlying profitability. As a result, we think it may well be the case that Sonaecom S.G.P.S' underlying earnings power is lower than its statutory profit. But on the bright side, its earnings per share have grown at an extremely impressive rate over the last three years. 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 want to do dive deeper into Sonaecom S.G.P.S, you'd also look into what risks it is currently facing. Case in point: We've spotted 2 warning signs for Sonaecom S.G.P.S you should be aware of.

This note has only looked at a single factor that sheds light on the nature of Sonaecom S.G.P.S' 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 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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