The Strong Earnings Posted By Zurn Elkay Water Solutions (NYSE:ZWS) Are A Good Indication Of The Strength Of The Business

The subdued stock price reaction suggests that Zurn Elkay Water Solutions Corporation's (NYSE:ZWS) strong earnings didn't offer any surprises. Investors are probably missing some underlying factors which are encouraging for the future of the company.

See our latest analysis for Zurn Elkay Water Solutions

How Do Unusual Items Influence Profit?

For anyone who wants to understand Zurn Elkay Water Solutions' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by US$32m due 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. Assuming those unusual expenses don't come up again, we'd therefore expect Zurn Elkay Water Solutions to produce a higher profit next year, all else being equal.

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 Zurn Elkay Water Solutions' Profit Performance

Because unusual items detracted from Zurn Elkay Water Solutions' earnings over the last year, you could argue that we can expect an improved result in the current quarter. Because of this, we think Zurn Elkay Water Solutions' earnings potential is at least as good as it seems, and maybe even better! Better yet, its EPS are growing strongly, which is nice to see. 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 while earnings quality is important, it's equally important to consider the risks facing Zurn Elkay Water Solutions at this point in time. For example, we've discovered 1 warning sign that you should run your eye over to get a better picture of Zurn Elkay Water Solutions.

Today we've zoomed in on a single data point to better understand the nature of Zurn Elkay Water Solutions' 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. 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.