Owens Corning's (NYSE:OC) Promising Earnings May Rest On Soft Foundations

Investors were disappointed with Owens Corning's (NYSE:OC) earnings, despite the strong profit numbers. We did some digging and found some worrying underlying problems.

Our analysis indicates that OC is potentially undervalued!

The Impact Of Unusual Items On Profit

To properly understand Owens Corning's profit results, we need to consider the US$138m 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 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. And that's as you'd expect, given these boosts are described as 'unusual'. If Owens Corning doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

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 Owens Corning's Profit Performance

Arguably, Owens Corning's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Owens Corning's true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 44% EPS growth 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 if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. When we did our research, we found 3 warning signs for Owens Corning (1 is concerning!) that we believe deserve your full attention.

This note has only looked at a single factor that sheds light on the nature of Owens Corning's profit. But there are plenty of other ways to inform your opinion of a company. 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. 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.