Shareholders appeared to be happy with Simulations Plus, Inc.'s (NASDAQ:SLP) solid earnings report last week. Looking deeper at the numbers, we found several encouraging factors beyond the headline profit numbers.
The Impact Of Unusual Items On Profit
Importantly, our data indicates that Simulations Plus' profit was reduced by US$4.8m, due to unusual items, over the last year. 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 Simulations Plus 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 Simulations Plus' Profit Performance
Unusual items (expenses) detracted from Simulations Plus' earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Simulations Plus' statutory profit actually understates its earnings potential! 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. If you want to do dive deeper into Simulations Plus, you'd also look into what risks it is currently facing. In terms of investment risks, we've identified 1 warning sign with Simulations Plus, and understanding this should be part of your investment process.
Today we've zoomed in on a single data point to better understand the nature of Simulations Plus' 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. 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 that insiders are buying 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.