Stock Analysis

Are EnerSys's (NYSE:ENS) Statutory Earnings A Good Reflection Of Its Earnings Potential?

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NYSE:ENS
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Many investors consider it preferable to invest in profitable companies over unprofitable ones, because profitability suggests a business is sustainable. However, sometimes companies receive a one-off boost (or reduction) to their profit, and it's not always clear whether statutory profits are a good guide, going forward. In this article, we'll look at how useful this year's statutory profit is, when analysing EnerSys (NYSE:ENS).

It's good to see that over the last twelve months EnerSys made a profit of US$96.7m on revenue of US$2.96b. While it managed to grow its revenue over the last three years, its profit has moved in the other direction, as you can see in the chart below.

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earnings-and-revenue-history
NYSE:ENS Earnings and Revenue History December 25th 2020

Importantly, statutory profits are not always the best tool for understanding a company's true earnings power, so it's well worth examining profits in a little more detail. This article will focus on the impact unusual items have had on EnerSys' statutory earnings. 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.

The Impact Of Unusual Items On Profit

Importantly, our data indicates that EnerSys' profit was reduced by US$58m, 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. If EnerSys doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Our Take On EnerSys' Profit Performance

Because unusual items detracted from EnerSys' earnings over the last year, you could argue that we can expect an improved result in the current quarter. Based on this observation, we consider it likely that EnerSys' statutory profit actually understates its earnings potential! On the other hand, its EPS actually shrunk in the last twelve months. 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 if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. At Simply Wall St, we found 3 warning signs for EnerSys and we think they deserve your attention.

Today we've zoomed in on a single data point to better understand the nature of EnerSys' 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. 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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