Jazan Energy and Development's (TADAWUL:6090) Promising Earnings May Rest On Soft Foundations

Jazan Energy and Development Co. (TADAWUL:6090) announced strong profits, but the stock was stagnant. We did some digging, and we found some concerning factors in the details.

See our latest analysis for Jazan Energy and Development

The Impact Of Unusual Items On Profit

For anyone who wants to understand Jazan Energy and Development's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from ر.س1.5m worth of 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. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. Which is hardly surprising, given the name. If Jazan Energy and Development 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 Jazan Energy and Development.

Our Take On Jazan Energy and Development's Profit Performance

We'd posit that Jazan Energy and Development's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Therefore, it seems possible to us that Jazan Energy and Development's true underlying earnings power is actually less than its statutory profit. On the bright side, the company showed enough improvement to book a profit this year, after losing money last year. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. For instance, we've identified 2 warning signs for Jazan Energy and Development (1 is potentially serious) you should be familiar with.

This note has only looked at a single factor that sheds light on the nature of Jazan Energy and Development'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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