Despite posting healthy earnings, Magna International Inc.’s (TSE:MG ) stock has been quite weak. Our analysis suggests that there are some reasons for hope that investors should be aware of.
Check out our latest analysis for Magna International
The Impact Of Unusual Items On Profit
To properly understand Magna International’s profit results, we need to consider the US$364m expense attributed to unusual items. It’s never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And, after all, that’s exactly what the accounting terminology implies. Assuming those unusual expenses don’t come up again, we’d therefore expect Magna International 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 Magna International’s Profit Performance
Because unusual items detracted from Magna International’s earnings over the last year, you could argue that we can expect an improved result in the current quarter. Because of this, we think Magna International’s earnings potential is at least as good as it seems, and maybe even better! And the EPS is up 5.8% over the last twelve months. 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. So while earnings quality is important, it’s equally important to consider the risks facing Magna International at this point in time. For example, we’ve discovered 1 warning sign that you should run your eye over to get a better picture of Magna International.
This note has only looked at a single factor that sheds light on the nature of Magna International’s profit. But there are plenty of other ways to inform your opinion of a company. 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.
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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.