Nu-World Holdings' (JSE:NWL) Profits May Not Reveal Underlying Issues

Nu-World Holdings Limited's (JSE:NWL) robust recent earnings didn't do much to move the stock. However the statutory profit number doesn't tell the whole story, and we have found some factors which might be of concern to shareholders.

See our latest analysis for Nu-World Holdings

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Nu-World Holdings' profit received a boost of R81m in unusual items, over the last year. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. 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'. Nu-World Holdings had a rather significant contribution from unusual items relative to its profit to February 2024. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Nu-World Holdings.

Our Take On Nu-World Holdings' Profit Performance

As we discussed above, we think the significant positive unusual item makes Nu-World Holdings' earnings a poor guide to its underlying profitability. As a result, we think it may well be the case that Nu-World Holdings' underlying earnings power is lower than its statutory profit. But at least holders can take some solace from the 38% EPS growth in 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. So while earnings quality is important, it's equally important to consider the risks facing Nu-World Holdings at this point in time. Case in point: We've spotted 5 warning signs for Nu-World Holdings you should be mindful of and 1 of these is a bit concerning.

Today we've zoomed in on a single data point to better understand the nature of Nu-World Holdings' 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. 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.