We Think That There Are Issues Underlying Al-Babtain Power and Telecommunications' (TADAWUL:2320) Earnings

Last week's profit announcement from Al-Babtain Power and Telecommunications Company (TADAWUL:2320) was underwhelming for investors, despite headline numbers being robust. We did some digging and found some worrying underlying problems.

Check out our latest analysis for Al-Babtain Power and Telecommunications

How Do Unusual Items Influence Profit?

To properly understand Al-Babtain Power and Telecommunications' profit results, we need to consider the ر.س59m 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 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. If Al-Babtain Power and Telecommunications doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current 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 Al-Babtain Power and Telecommunications' Profit Performance

Arguably, Al-Babtain Power and Telecommunications' statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Al-Babtain Power and Telecommunications' true underlying earnings power is actually less than its statutory profit. But the good news is that its EPS growth over the last three years has been very impressive. 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 Al-Babtain Power and Telecommunications at this point in time. To help with this, we've discovered 4 warning signs (2 are significant!) that you ought to be aware of before buying any shares in Al-Babtain Power and Telecommunications.

This note has only looked at a single factor that sheds light on the nature of Al-Babtain Power and Telecommunications' 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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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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.