We Think Energy Recovery's (NASDAQ:ERII) Healthy Earnings Might Be Conservative

Energy Recovery, Inc.'s (NASDAQ:ERII) recent earnings report didn't offer any surprises, with the shares unchanged over the last week. We did some analysis to find out why and believe that investors might be missing some encouraging factors contained in the earnings.

See our latest analysis for Energy Recovery

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Energy Recovery's profit was reduced by US$2.5m, due to unusual items, over the last year. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect Energy Recovery 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 Energy Recovery's Profit Performance

Unusual items (expenses) detracted from Energy Recovery's earnings over the last year, but we might see an improvement next year. Because of this, we think Energy Recovery's earnings potential is at least as good as it seems, and maybe even better! And the EPS is up 61% annually, over the last three years. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. So while earnings quality is important, it's equally important to consider the risks facing Energy Recovery at this point in time. Every company has risks, and we've spotted 1 warning sign for Energy Recovery you should know about.

This note has only looked at a single factor that sheds light on the nature of Energy Recovery'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 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.