Pentair's (NYSE:PNR) Soft Earnings Don't Show The Whole Picture

The market was pleased with the recent earnings report from Pentair plc (NYSE:PNR), despite the profit numbers being soft. However, we think the company is showing some signs that things are more promising than they seem.

Check out our latest analysis for Pentair

How Do Unusual Items Influence Profit?

To properly understand Pentair's profit results, we need to consider the US$127m expense attributed to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. 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 Pentair doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming 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 Pentair's Profit Performance

Unusual items (expenses) detracted from Pentair's earnings over the last year, but we might see an improvement next year. Because of this, we think Pentair's earnings potential is at least as good as it seems, and maybe even better! And on top of that, its earnings per share have grown at 32% per year over the last three years. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. So while earnings quality is important, it's equally important to consider the risks facing Pentair at this point in time. Case in point: We've spotted 1 warning sign for Pentair you should be aware of.

This note has only looked at a single factor that sheds light on the nature of Pentair'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 that insiders are buying 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.