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The market for Waste Connections, Inc.'s (NYSE:WCN) shares didn't move much after it posted weak earnings recently. We did some digging, and we believe the earnings are stronger than they seem.
How Do Unusual Items Influence Profit?
For anyone who wants to understand Waste Connections' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by US$150m due to unusual items. 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 Waste Connections 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 Waste Connections' Profit Performance
Because unusual items detracted from Waste Connections' 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 Waste Connections' statutory profit actually understates its earnings potential! Unfortunately, though, its earnings per share actually fell back over the last year. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. Case in point: We've spotted 2 warning signs for Waste Connections you should be aware of.
This note has only looked at a single factor that sheds light on the nature of Waste Connections' profit. But there is always more to discover if you are capable of focussing your mind on minutiae. Some people consider a high return on equity to be a good sign of a quality business. 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 with significant insider holdings 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.