Investors Shouldn't Be Too Comfortable With Huntington Ingalls Industries' (NYSE:HII) Earnings

Despite posting some strong earnings, the market for Huntington Ingalls Industries, Inc.'s (NYSE:HII) stock hasn't moved much. Our analysis suggests that shareholders have noticed something concerning in the numbers.

Check out our latest analysis for Huntington Ingalls Industries

How Do Unusual Items Influence Profit?

To properly understand Huntington Ingalls Industries' profit results, we need to consider the US$143m gain attributed to unusual items. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. 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 Huntington Ingalls Industries' Profit Performance

We'd posit that Huntington Ingalls Industries' statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Because of this, we think that it may be that Huntington Ingalls Industries' statutory profits are better than its underlying earnings power. The good news is that, its earnings per share increased by 18% in the last year. 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. So while earnings quality is important, it's equally important to consider the risks facing Huntington Ingalls Industries at this point in time. Case in point: We've spotted 2 warning signs for Huntington Ingalls Industries you should be aware of.

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

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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.