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Despite posting some strong earnings, the market for LEG Immobilien SE's (ETR:LEG) stock hasn't moved much. Our analysis suggests that this might be because shareholders have noticed some concerning underlying factors.
We've discovered 3 warning signs about LEG Immobilien. View them for free.
Operating Revenue Or Not?
Companies will classify their revenue streams as either operating revenue or other revenue. Where possible, we prefer rely on operating revenue to get a better understanding of how the business is functioning. Importantly, the non-operating revenue often comes without associated ongoing costs, so it can boost profit by letting it fall straight to the bottom line, making the operating business seem better than it really is. Notably, LEG Immobilien had a significant increase in non-operating revenue over the last year. In fact, our data indicates that non-operating revenue increased from €135.2m to €356.4m. The high levels of non-operating revenue are problematic because if (and when) they do not repeat, then overall revenue (and profitability) of the firm will fall. Sometimes, you can get a better idea of the underlying earnings potential of a company by excluding unusual boosts to non-operating revenue.
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.
How Do Unusual Items Influence Profit?
Alongside that spike in non-operating revenue, it's also important to note that LEG Immobilien'sprofit suffered from unusual items, which reduced profit by €275m in the last twelve months. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. 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 LEG Immobilien to produce a higher profit next year, all else being equal.
Our Take On LEG Immobilien's Profit Performance
In its last report LEG Immobilien benefitted from a spike in non-operating revenue which may have boosted its profit in a way that may be no more sustainable than low quality coal mining. Having said that, it also took a hit from unusual items, which could bode well for next year, assuming the expense was one-off in nature. Based on these factors, we think it's very unlikely that LEG Immobilien's statutory profits make it seem much weaker than it is. If you want to do dive deeper into LEG Immobilien, you'd also look into what risks it is currently facing. For instance, we've identified 3 warning signs for LEG Immobilien (1 shouldn't be ignored) you should be familiar with.