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Contact Energy Limited (NZSE:CEN) just reported healthy earnings but the stock price didn't move much. Our analysis suggests that investors might be missing some promising details.
See our latest analysis for Contact Energy
The Impact Of Unusual Items On Profit
Importantly, our data indicates that Contact Energy's profit was reduced by NZ$55m, 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 Contact Energy 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 Contact Energy's Profit Performance
Because unusual items detracted from Contact Energy's 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 Contact Energy's statutory profit actually understates its earnings potential! Furthermore, it has done a great job growing EPS 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. So while earnings quality is important, it's equally important to consider the risks facing Contact Energy at this point in time. Every company has risks, and we've spotted 1 warning sign for Contact Energy you should know about.
This note has only looked at a single factor that sheds light on the nature of Contact Energy's 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.