Investors Can Find Comfort In Alfa Laval's (STO:ALFA) Earnings Quality

The market for Alfa Laval AB (publ)'s (STO:ALFA) shares didn't move much after it posted weak earnings recently. Our analysis suggests that while the profits are soft, the foundations of the business are strong.

Check out our latest analysis for Alfa Laval

The Impact Of Unusual Items On Profit

To properly understand Alfa Laval's profit results, we need to consider the kr774m expense attributed to unusual items. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's hardly a surprise given these line items are considered unusual. Assuming those unusual expenses don't come up again, we'd therefore expect Alfa Laval to produce a higher profit next year, all else being equal.

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 Alfa Laval's Profit Performance

Unusual items (expenses) detracted from Alfa Laval's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Alfa Laval's statutory profit actually understates its earnings potential! And the EPS is up 19% annually, 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 want to do dive deeper into Alfa Laval, you'd also look into what risks it is currently facing. You'd be interested to know, that we found 1 warning sign for Alfa Laval and you'll want to know about it.

Today we've zoomed in on a single data point to better understand the nature of Alfa Laval'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 that insiders are buying to be useful.

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This article by Simply Wall St is general in nature. 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.
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