Investors Shouldn't Be Too Comfortable With KlaraBo Sverige's (STO:KLARA B) Robust Earnings

Despite posting some strong earnings, the market for KlaraBo Sverige AB (publ)'s (STO:KLARA B) stock hasn't moved much. We did some digging, and we found some concerning factors in the details.

View our latest analysis for KlaraBo Sverige

The Impact Of Unusual Items On Profit

For anyone who wants to understand KlaraBo Sverige's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from kr737m 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. 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. Which is hardly surprising, given the name. We can see that KlaraBo Sverige's positive unusual items were quite significant relative to its profit in the year to December 2021. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

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 KlaraBo Sverige's Profit Performance

As previously mentioned, KlaraBo Sverige's large boost from unusual items won't be there indefinitely, so its statutory earnings are probably a poor guide to its underlying profitability. For this reason, we think that KlaraBo Sverige's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. But at least holders can take some solace from the 22% EPS growth in the last year. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. So while earnings quality is important, it's equally important to consider the risks facing KlaraBo Sverige at this point in time. For instance, we've identified 4 warning signs for KlaraBo Sverige (2 are significant) you should be familiar with.

This note has only looked at a single factor that sheds light on the nature of KlaraBo Sverige's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. Some people consider a high return on equity to be a good sign of a quality business. 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. 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.