In This Article:
When companies post strong earnings, the stock generally performs well, just like Jazz Pharmaceuticals plc's (NASDAQ:JAZZ) stock has recently. We have done some analysis, and we found several positive factors beyond the profit numbers.
Check out our latest analysis for Jazz Pharmaceuticals
The Impact Of Unusual Items On Profit
Importantly, our data indicates that Jazz Pharmaceuticals' profit was reduced by US$219m, 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 that's hardly a surprise given these line items are considered unusual. Assuming those unusual expenses don't come up again, we'd therefore expect Jazz Pharmaceuticals 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
Just as we noted the unusual items, we must inform you that Jazz Pharmaceuticals received a tax benefit which contributed US$67m to the bottom line. This is of course a bit out of the ordinary, given it is more common for companies to be paying tax than receiving tax benefits! The receipt of a tax benefit is obviously a good thing, on its own. 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.
Our Take On Jazz Pharmaceuticals' Profit Performance
In its last report Jazz Pharmaceuticals received a tax benefit which might make its profit look better than it really is on a underlying level. Having said that, it also had a unusual item reducing its profit. After taking into account all these factors, we think that Jazz Pharmaceuticals' statutory results are a decent reflection of its underlying earnings power. If you want to do dive deeper into Jazz Pharmaceuticals, you'd also look into what risks it is currently facing. Case in point: We've spotted 2 warning signs for Jazz Pharmaceuticals you should be mindful of and 1 of them is a bit unpleasant.
In this article we've looked at a number of factors that can impair the utility of profit numbers, as a guide to a business. 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. 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.