Stock Analysis

Deluxe's (NYSE:DLX) Soft Earnings Don't Show The Whole Picture

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The market was pleased with the recent earnings report from Deluxe Corporation (NYSE:DLX), despite the profit numbers being soft. We think that investors might be looking at some positive factors beyond the earnings numbers.

See our latest analysis for Deluxe

NYSE:DLX Earnings and Revenue History February 9th 2024

The Impact Of Unusual Items On Profit

To properly understand Deluxe's profit results, we need to consider the US$46m expense attributed 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 that's hardly a surprise given these line items are considered unusual. Assuming those unusual expenses don't come up again, we'd therefore expect Deluxe 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 Deluxe's Profit Performance

Unusual items (expenses) detracted from Deluxe's earnings over the last year, but we might see an improvement next year. Because of this, we think Deluxe's 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. 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 while earnings quality is important, it's equally important to consider the risks facing Deluxe at this point in time. Case in point: We've spotted 4 warning signs for Deluxe you should be mindful of and 1 of them is potentially serious.

This note has only looked at a single factor that sheds light on the nature of Deluxe'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.

Valuation is complex, but we're helping make it simple.

Find out whether Deluxe is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.