We Think You Should Be Aware Of Some Concerning Factors In Bidvest Group's (JSE:BVT) Earnings

The market shrugged off The Bidvest Group Limited's (JSE:BVT) solid earnings report. We think that investors might be worried about some concerning underlying factors.

See our latest analysis for Bidvest Group

Operating Revenue Or Not?

Most companies divide classify their revenue as either 'operating revenue', which comes from normal operations, and other revenue, which could include government grants, for example. Generally speaking, operating revenue is a more reliable guide to the sustainable revenue generating capacity of the business. However, we note that when non-operating revenue increases suddenly, it will sometimes generate an unsustainable boost to profit. Notably, Bidvest Group had a significant increase in non-operating revenue over the last year. Indeed, its non-operating revenue rose from R57.8b last year to R122.6b this year. If that non-operating revenue fails to manifest in the current year, then there's a real risk the bottom line profit result will be impacted negatively. Sometimes, you can get a better idea of the underlying earnings potential of a company by excluding unusual boosts to non-operating revenue.

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 Bidvest Group's Profit Performance

Since Bidvest Group saw a big increase in its non-operating revenue over the last twelve months, we'd be very cautious about relying too heavily on the statutory profit number, which would have benefitted from this potentially unsustainable change. For this reason, we think that Bidvest Group's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. But at least holders can take some solace from the 35% per annum growth in EPS for the last three. 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. So while earnings quality is important, it's equally important to consider the risks facing Bidvest Group at this point in time. In terms of investment risks, we've identified 2 warning signs with Bidvest Group, and understanding these bad boys should be part of your investment process.

This note has only looked at a single factor that sheds light on the nature of Bidvest Group's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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 with significant insider holdings to be useful.

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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.