Yellow's (NASDAQ:YELL) Earnings Are Of Questionable Quality

Despite announcing strong earnings, Yellow Corporation's (NASDAQ:YELL) stock was sluggish. We think that the market might be paying attention to some underlying factors are concerning.

See our latest analysis for Yellow

The Impact Of Unusual Items On Profit

To properly understand Yellow's profit results, we need to consider the US$38m gain attributed to unusual items. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. 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'. If Yellow doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

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 Yellow's Profit Performance

Arguably, Yellow's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Yellow's true underlying earnings power is actually less than its statutory profit. On the bright side, the company showed enough improvement to book a profit this year, after losing money 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. If you'd like to know more about Yellow as a business, it's important to be aware of any risks it's facing. To help with this, we've discovered 5 warning signs (3 can't be ignored!) that you ought to be aware of before buying any shares in Yellow.

Today we've zoomed in on a single data point to better understand the nature of Yellow's 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.