Naqi Water's (TADAWUL:2282) Weak Earnings May Only Reveal A Part Of The Whole Picture

A lackluster earnings announcement from Naqi Water Company (TADAWUL:2282) last week didn't sink the stock price. Our analysis suggests that along with soft profit numbers, investors should be aware of some other underlying weaknesses in the numbers.

View our latest analysis for Naqi Water

The Impact Of Unusual Items On Profit

For anyone who wants to understand Naqi Water's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from ر.س3.6m 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 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, after all, that's exactly what the accounting terminology implies. If Naqi Water doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Naqi Water.

Our Take On Naqi Water's Profit Performance

We'd posit that Naqi Water's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Because of this, we think that it may be that Naqi Water's statutory profits are better than its underlying earnings power. In further bad news, its earnings per share decreased in the last year. 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. If you'd like to know more about Naqi Water as a business, it's important to be aware of any risks it's facing. In terms of investment risks, we've identified 1 warning sign with Naqi Water, and understanding this should be part of your investment process.

Today we've zoomed in on a single data point to better understand the nature of Naqi Water'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. 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.