ACWA Power's (TADAWUL:2082) Solid Profits Have Weak Fundamentals

Despite posting some strong earnings, the market for ACWA Power Company's (TADAWUL:2082) stock hasn't moved much. We did some digging, and we found some concerning factors in the details.

See our latest analysis for ACWA Power

The Impact Of Unusual Items On Profit

To properly understand ACWA Power's profit results, we need to consider the ر.س376m 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 analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's as you'd expect, given these boosts are described as 'unusual'. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

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 ACWA Power's Profit Performance

Arguably, ACWA Power's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that ACWA Power's statutory profits are better than its underlying earnings power. Nonetheless, it's still worth noting that its earnings per share have grown at 69% over the last three years. 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 ACWA Power as a business, it's important to be aware of any risks it's facing. When we did our research, we found 3 warning signs for ACWA Power (1 shouldn't be ignored!) that we believe deserve your full attention.

This note has only looked at a single factor that sheds light on the nature of ACWA Power's profit. But there are plenty of other ways to inform your opinion of a company. 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 with significant insider holdings to be useful.

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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.