FormFactor (NASDAQ:FORM) Strong Profits May Be Masking Some Underlying Issues

The market for FormFactor, Inc.'s (NASDAQ:FORM) stock was strong after it released a healthy earnings report last week. While the profit numbers were good, our analysis has found some concerning factors that shareholders should be aware of.

View our latest analysis for FormFactor

The Impact Of Unusual Items On Profit

For anyone who wants to understand FormFactor's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from US$73m worth of 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. 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. FormFactor had a rather significant contribution from unusual items relative to its profit to December 2023. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

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 FormFactor's Profit Performance

As we discussed above, we think the significant positive unusual item makes FormFactor's earnings a poor guide to its underlying profitability. As a result, we think it may well be the case that FormFactor's underlying earnings power is lower than its statutory profit. The good news is that, its earnings per share increased by 62% in the 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. In terms of investment risks, we've identified 2 warning signs with FormFactor, and understanding them should be part of your investment process.

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