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Genuine Parts Company's (NYSE:GPC) recent soft profit numbers didn't appear to worry shareholders, as the stock price showed strength. However, we think the company is showing some signs that things are more promising than they seem.
We've discovered 3 warning signs about Genuine Parts. View them for free.
How Do Unusual Items Influence Profit?
Importantly, our data indicates that Genuine Parts' profit was reduced by US$226m, 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. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect Genuine Parts 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.
Our Take On Genuine Parts' Profit Performance
Because unusual items detracted from Genuine Parts' earnings over the last year, you could argue that we can expect an improved result in the current quarter. Based on this observation, we consider it likely that Genuine Parts' statutory profit actually understates its earnings potential! Unfortunately, though, its earnings per share actually fell back 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. If you want to do dive deeper into Genuine Parts, you'd also look into what risks it is currently facing. To that end, you should learn about the 3 warning signs we've spotted with Genuine Parts (including 1 which shouldn't be ignored).
This note has only looked at a single factor that sheds light on the nature of Genuine Parts' 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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.
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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.