Priority Technology Holdings, Inc.'s (NASDAQ:PRTH) stock was strong after they reported robust earnings. However, our analysis suggests that shareholders may be missing some factors that indicate the earnings result was not as good as it looked.
The Impact Of Unusual Items On Profit
For anyone who wants to understand Priority Technology Holdings' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from US$100m worth of unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And that's as you'd expect, given these boosts are described as 'unusual'. We can see that Priority Technology Holdings' positive unusual items were quite significant relative to its profit in the year to December 2020. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.
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 Priority Technology Holdings' Profit Performance
As we discussed above, we think the significant positive unusual item makes Priority Technology Holdings' earnings a poor guide to its underlying profitability. For this reason, we think that Priority Technology Holdings' statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. The good news is that it earned a profit in the last twelve months, despite its previous loss. 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. If you want to do dive deeper into Priority Technology Holdings, you'd also look into what risks it is currently facing. Be aware that Priority Technology Holdings is showing 4 warning signs in our investment analysis and 2 of those are a bit concerning...
This note has only looked at a single factor that sheds light on the nature of Priority Technology Holdings' 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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