Fortinova Fastigheter's (STO:FNOVA B) Promising Earnings May Rest On Soft Foundations

Fortinova Fastigheter AB (Publ) (STO:FNOVA B) announced strong profits, but the stock was stagnant. Our analysis suggests that shareholders have noticed something concerning in the numbers.

Check out our latest analysis for Fortinova Fastigheter

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Fortinova Fastigheter's profit received a boost of kr125m in unusual items, over the last year. 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 that's as you'd expect, given these boosts are described as 'unusual'. Fortinova Fastigheter had a rather significant contribution from unusual items relative to its profit to February 2021. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

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

Our Take On Fortinova Fastigheter's Profit Performance

As we discussed above, we think the significant positive unusual item makes Fortinova Fastigheter's earnings a poor guide to its underlying profitability. For this reason, we think that Fortinova Fastigheter's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. Sadly, its EPS was down over the last twelve months. 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. Case in point: We've spotted 3 warning signs for Fortinova Fastigheter you should be mindful of and 1 of them is significant.

This note has only looked at a single factor that sheds light on the nature of Fortinova Fastigheter'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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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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