Why Blue Label Telecoms' (JSE:BLU) Earnings Are Better Than They Seem

Investors signalled that they were pleased with Blue Label Telecoms Limited's (JSE:BLU) most recent earnings report, with a strong stock price reaction. According to our analysis of the report, the strong headline profit numbers are supported by strong earnings fundamentals.

View our latest analysis for Blue Label Telecoms

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Blue Label Telecoms' profit was reduced by R133m, due to unusual items, over the last year. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And, after all, that's exactly what the accounting terminology implies. If Blue Label Telecoms doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Blue Label Telecoms.

Our Take On Blue Label Telecoms' Profit Performance

Because unusual items detracted from Blue Label Telecoms' earnings over the last year, you could argue that we can expect an improved result in the current quarter. Because of this, we think Blue Label Telecoms' earnings potential is at least as good as it seems, and maybe even better! And on top of that, its earnings per share have grown at an extremely impressive rate over the last year. 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. Just as investors must consider earnings, it is also important to take into account the strength of a company's balance sheet. If you're interested we have a graphic representation of Blue Label Telecoms' balance sheet.

This note has only looked at a single factor that sheds light on the nature of Blue Label Telecoms' profit. But there are plenty of other ways to inform your opinion of a company. 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. 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. 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.