Statistically speaking, it is less risky to invest in profitable companies than in unprofitable ones. 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. Today we’ll focus on whether this year’s statutory profits are a good guide to understanding Kennedy-Wilson Holdings (NYSE:KW).
We like the fact that Kennedy-Wilson Holdings made a profit of US$219.2m on its revenue of US$593.3m, in the last year. The chart below shows how profit has actually increased over the last three years, even while revenue has declined.
Not all profits are equal, and we can learn more about the nature of a company’s past profitability by diving deeper into the financial statements. This article will focus on the impact unusual items have had on Kennedy-Wilson Holdings’s statutory earnings. 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
Importantly, our data indicates that Kennedy-Wilson Holdings’s profit received a boost of US$545m in unusual items, over the last year. We can’t deny that higher profits generally leave us optimistic, but we’d prefer it if the profit were to be sustainable. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that’s exactly what the accounting terminology implies. We can see that Kennedy-Wilson Holdings’s positive unusual items were quite significant relative to its profit in the year to March 2020. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.
Our Take On Kennedy-Wilson Holdings’s Profit Performance
As previously mentioned, Kennedy-Wilson Holdings’s large boost from unusual items won’t be there indefinitely, so its statutory earnings are probably a poor guide to its underlying profitability. For this reason, we think that Kennedy-Wilson Holdings’s statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. But the good news is that its EPS growth over the last three years has been very impressive. 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. In light of this, if you’d like to do more analysis on the company, it’s vital to be informed of the risks involved. Our analysis shows 4 warning signs for Kennedy-Wilson Holdings (1 shouldn’t be ignored!) and we strongly recommend you look at these before investing.
Today we’ve zoomed in on a single data point to better understand the nature of Kennedy-Wilson Holdings’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.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Simply Wall St has no position in the stocks mentioned.
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