Basic Chemical Industries' (TADAWUL:1210) Promising Earnings May Rest On Soft Foundations

Despite posting some strong earnings, the market for Basic Chemical Industries Company's (TADAWUL:1210) stock hasn't moved much. We did some digging, and we found some concerning factors in the details.

View our latest analysis for Basic Chemical Industries

How Do Unusual Items Influence Profit?

For anyone who wants to understand Basic Chemical Industries' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from ر.س10m worth of unusual items. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. 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 Basic Chemical Industries 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 Basic Chemical Industries.

Our Take On Basic Chemical Industries' Profit Performance

Arguably, Basic Chemical Industries' statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Basic Chemical Industries' statutory profits are better than its underlying earnings power. But the happy news is that, while acknowledging we have to look beyond the statutory numbers, those numbers are still improving, with EPS growing at a very high rate over 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. When we did our research, we found 2 warning signs for Basic Chemical Industries (1 is potentially serious!) that we believe deserve your full attention.

This note has only looked at a single factor that sheds light on the nature of Basic Chemical Industries' profit. But there are plenty of other ways to inform your opinion of a company. 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.