We Think You Should Be Aware Of Some Concerning Factors In Where Food Comes From's (NASDAQ:WFCF) Earnings

Where Food Comes From, Inc.'s (NASDAQ:WFCF) robust recent earnings didn't do much to move the stock. However the statutory profit number doesn't tell the whole story, and we have found some factors which might be of concern to shareholders.

View our latest analysis for Where Food Comes From

The Impact Of Unusual Items On Profit

For anyone who wants to understand Where Food Comes From's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from US$1.1m worth of unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And, after all, that's exactly what the accounting terminology implies. Where Food Comes From had a rather significant contribution from unusual items relative to its profit to March 2021. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Where Food Comes From.

Our Take On Where Food Comes From's Profit Performance

As we discussed above, we think the significant positive unusual item makes Where Food Comes From's earnings a poor guide to its underlying profitability. As a result, we think it may well be the case that Where Food Comes From's underlying earnings power is lower than its statutory profit. But the good news is that its EPS growth over the last three years has been very impressive. 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. In terms of investment risks, we've identified 2 warning signs with Where Food Comes From, and understanding them should be part of your investment process.

Today we've zoomed in on a single data point to better understand the nature of Where Food Comes From'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. 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. 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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