Investors were underwhelmed by the solid earnings posted by Genesis Energy Limited (NZSE:GNE) recently. We did some digging and actually think they are being unnecessarily pessimistic.

View our latest analysis for Genesis Energy

How Do Unusual Items Influence Profit?

To properly understand Genesis Energy's profit results, we need to consider the NZ$101m 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. 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. Genesis Energy took a rather significant hit from unusual items in the year to December 2024. All else being equal, this would likely have the effect of making the statutory profit look worse than its underlying earnings power.

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 Genesis Energy's Profit Performance

As we mentioned previously, the Genesis Energy's profit was hampered by unusual items in the last year. Based on this observation, we consider it possible that Genesis Energy's statutory profit actually understates its earnings potential! Better yet, its EPS are growing strongly, which is nice to see. 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 Genesis Energy at this point in time. For instance, we've identified 3 warning signs for Genesis Energy (1 can't be ignored) you should be familiar with.

Today we've zoomed in on a single data point to better understand the nature of Genesis Energy'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. 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.