Stock Analysis

Alcoa's (NYSE:AA) Robust Earnings Are Supported By Other Strong Factors

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NYSE:AA
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Even though Alcoa Corporation's (NYSE:AA) recent earnings release was robust, the market didn't seem to notice. We think that investors have missed some encouraging factors underlying the profit figures.

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NYSE:AA Earnings and Revenue History May 3rd 2022

The Impact Of Unusual Items On Profit

For anyone who wants to understand Alcoa's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by US$943m 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 that's hardly a surprise given these line items are considered unusual. If Alcoa 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 Alcoa's Profit Performance

Unusual items (expenses) detracted from Alcoa's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Alcoa's statutory profit actually understates its earnings potential! And one can definitely find a positive in the fact that it made a profit this year, despite losing money last year. 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. Be aware that Alcoa is showing 4 warning signs in our investment analysis and 1 of those can't be ignored...

This note has only looked at a single factor that sheds light on the nature of Alcoa's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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. 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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