As a general rule, we think profitable companies are less risky than companies that lose money. Having said that, sometimes statutory profit levels are not a good guide to ongoing profitability, because some short term one-off factor has impacted profit levels. This article will consider whether Abiomed's (NASDAQ:ABMD) statutory profits are a good guide to its underlying earnings.
While Abiomed was able to generate revenue of US$802.9m in the last twelve months, we think its profit result of US$207.8m was more important. In the chart below, you can see that its profit and revenue have both grown over the last three years, albeit not in the last year.
Of course, when it comes to statutory profit, the devil is often in the detail, and we can get a better sense for a company by diving deeper into the financial statements. This article will discuss how unusual items have impacted Abiomed's most recent profit results. 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.
The Impact Of Unusual Items On Profit
To properly understand Abiomed's profit results, we need to consider the US$33m gain attributed to unusual items. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. 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 that's as you'd expect, given these boosts are described as 'unusual'. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).
Our Take On Abiomed's Profit Performance
We'd posit that Abiomed's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Because of this, we think that it may be that Abiomed's statutory profits are better than its underlying earnings power. But the good news is that its EPS growth over the last three years has been very impressive. 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. If you'd like to know more about Abiomed as a business, it's important to be aware of any risks it's facing. For example - Abiomed has 1 warning sign we think you should be aware of.
Today we've zoomed in on a single data point to better understand the nature of Abiomed'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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What are the risks and opportunities for Abiomed?
Revenue is forecast to grow 13.08% per year
Earnings grew by 78.9% over the past year
Earnings are forecast to decline by an average of 2.5% per year for the next 3 years
Large one-off items impacting financial results
Volatile share price over the past 3 months
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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