Stock Analysis

Construction Partners' (NASDAQ:ROAD) Problems Go Beyond Weak Profit

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A lackluster earnings announcement from Construction Partners, Inc. (NASDAQ:ROAD) last week didn't sink the stock price. We think that investors are worried about some weaknesses underlying the earnings.

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NasdaqGS:ROAD Earnings and Revenue History November 30th 2021

How Do Unusual Items Influence Profit?

For anyone who wants to understand Construction Partners' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from US$2.0m worth of unusual items. 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. Which is hardly surprising, given the name. 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 Construction Partners' Profit Performance

Arguably, Construction Partners' statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Construction Partners' true underlying earnings power is actually less than its statutory profit. In further bad news, its earnings per share decreased in the last year. 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 Construction Partners at this point in time. Every company has risks, and we've spotted 1 warning sign for Construction Partners you should know about.

This note has only looked at a single factor that sheds light on the nature of Construction Partners' profit. But there are plenty of other ways to inform your opinion of a company. Some people consider a high return on equity to be a good sign of a quality business. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

Valuation is complex, but we're helping make it simple.

Find out whether Construction Partners is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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