The subdued stock price reaction suggests that Watts Water Technologies, Inc.'s (NYSE:WTS) strong earnings didn't offer any surprises. We think that investors have missed some encouraging factors underlying the profit figures.
How Do Unusual Items Influence Profit?
For anyone who wants to understand Watts Water Technologies' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by US$24m due to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that's exactly what the accounting terminology implies. If Watts Water Technologies 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 Watts Water Technologies' Profit Performance
Unusual items (expenses) detracted from Watts Water Technologies' earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Watts Water Technologies' statutory profit actually understates its earnings potential! And the EPS is up 63% annually, over the last three years. 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. While conducting our analysis, we found that Watts Water Technologies has 1 warning sign and it would be unwise to ignore this.
Today we've zoomed in on a single data point to better understand the nature of Watts Water Technologies' profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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.
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