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The stock price didn't jump after L.B. Foster Company (NASDAQ:FSTR) posted decent earnings last week. We think that investors might be worried about some concerning underlying factors.
Our free stock report includes 3 warning signs investors should be aware of before investing in L.B. Foster. Read for free now.
The Impact Of Unusual Items On Profit
For anyone who wants to understand L.B. Foster's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by US$3.1m due to unusual items. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. 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. Assuming those unusual expenses don't come up again, we'd therefore expect L.B. Foster to produce a higher profit next year, all else being equal.
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.
An Unusual Tax Situation
Having already discussed the impact of the unusual items, we should also note that L.B. Foster received a tax benefit of US$29m. It's always a bit noteworthy when a company is paid by the tax man, rather than paying the tax man. We're sure the company was pleased with its tax benefit. However, the devil in the detail is that these kind of benefits only impact in the year they are booked, and are often one-off in nature. Assuming the tax benefit is not repeated every year, we could see its profitability drop noticeably, all else being equal. So while we think it's great to receive a tax benefit, it does tend to imply an increased risk that the statutory profit overstates the sustainable earnings power of the business.
Our Take On L.B. Foster's Profit Performance
In the last year L.B. Foster received a tax benefit, which boosted its profit in a way that might not be much more sustainable than turning prime farmland into gas fields. But on the other hand, it also saw an unusual item depress its profit. Based on these factors, we think it's very unlikely that L.B. Foster's statutory profits make it seem much weaker than it is. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. Case in point: We've spotted 3 warning signs for L.B. Foster you should be mindful of and 2 of these are potentially serious.