Open Text's (NASDAQ:OTEX) Soft Earnings Don't Show The Whole Picture

Shareholders appeared unconcerned with Open Text Corporation's (NASDAQ:OTEX) lackluster earnings report last week. We think that the softer headline numbers might be getting counterbalanced by some positive underlying factors.

See our latest analysis for Open Text

The Impact Of Unusual Items On Profit

To properly understand Open Text's profit results, we need to consider the US$213m expense attributed to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's hardly a surprise given these line items are considered unusual. Assuming those unusual expenses don't come up again, we'd therefore expect Open Text to produce a higher profit next year, all else being equal.

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 Open Text's Profit Performance

Unusual items (expenses) detracted from Open Text's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Open Text's statutory profit actually understates its earnings potential! And the EPS is up 42% annually, over the last three years. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. If you'd like to know more about Open Text as a business, it's important to be aware of any risks it's facing. For example, Open Text has 5 warning signs (and 1 which is significant) we think you should know about.

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