Power Integrations's (NASDAQ:POWI) Earnings Are Growing But Is There More To The Story?

By
Simply Wall St
Published
January 18, 2021
NasdaqGS:POWI
Source: Shutterstock

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. Today we'll focus on whether this year's statutory profits are a good guide to understanding Power Integrations (NASDAQ:POWI).

It's good to see that over the last twelve months Power Integrations made a profit of US$202.2m on revenue of US$452.1m. One positive is that it has grown both its profit and its revenue, over the last few years.

Check out our latest analysis for Power Integrations

earnings-and-revenue-history
NasdaqGS:POWI Earnings and Revenue History January 18th 2021

Importantly, statutory profits are not always the best tool for understanding a company's true earnings power, so it's well worth examining profits in a little more detail. This article will discuss how unusual items have impacted Power Integrations' 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

For anyone who wants to understand Power Integrations' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from US$169m worth of unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. And that's as you'd expect, given these boosts are described as 'unusual'. We can see that Power Integrations' positive unusual items were quite significant relative to its profit in the year to September 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 Power Integrations' Profit Performance

As previously mentioned, Power Integrations' 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 Power Integrations' 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. If you'd like to know more about Power Integrations as a business, it's important to be aware of any risks it's facing. Every company has risks, and we've spotted 4 warning signs for Power Integrations (of which 1 is concerning!) you should know about.

Today we've zoomed in on a single data point to better understand the nature of Power Integrations' profit. But there are plenty of other ways to inform your opinion of a company. Some people consider a high return on equity to be a good sign of a quality business. 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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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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