Posted on November 21, 2022
Dredging Corporation of India Limited (NSE:DREDGECORP) just reported some strong earnings, and the market reacted accordingly with a healthy uplift in the share price. We did some analysis and think that investors are missing some details hidden beneath the profit numbers.
Our analysis indicates that DREDGECORP is potentially undervalued!
The Impact Of Unusual Items On Profit
For anyone who wants to understand Dredging Corporation of India’s profit beyond the statutory numbers, it’s important to note that during the last twelve months statutory profit gained from ₹167m worth of unusual items. We can’t deny that higher profits generally leave us optimistic, but we’d prefer it if the profit were to be sustainable. We ran the numbers on most publicly listed companies worldwide, and it’s very common for unusual items to be once-off in nature. And that’s as you’d expect, given these boosts are described as ‘unusual’. We can see that Dredging Corporation of India’s positive unusual items were quite significant relative to its profit in the year to September 2022. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.
Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Dredging Corporation of India.
Our Take On Dredging Corporation of India’s Profit Performance
As previously mentioned, Dredging Corporation of India’s large boost from unusual items won’t be there indefinitely, so its statutory earnings are probably a poor guide to its underlying profitability. For this reason, we think that Dredging Corporation of India’s statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. On the bright side, the company showed enough improvement to book a profit this year, after losing money 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. In light of this, if you’d like to do more analysis on the company, it’s vital to be informed of the risks involved. In terms of investment risks, we’ve identified 2 warning signs with Dredging Corporation of India, and understanding these should be part of your investment process.
Today we’ve zoomed in on a single data point to better understand the nature of Dredging Corporation of India’s profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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.