The stock price didn't jump after Smith & Wesson Brands, Inc. (NASDAQ:SWBI) posted decent earnings last week. We think that investors might be worried about some concerning underlying factors.

View our latest analysis for Smith & Wesson Brands

How Do Unusual Items Influence Profit?

To properly understand Smith & Wesson Brands' profit results, we need to consider the US$7.2m gain attributed to 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. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. Which is hardly surprising, given the name. If Smith & Wesson Brands doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

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 Smith & Wesson Brands' Profit Performance

Arguably, Smith & Wesson Brands' statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Smith & Wesson Brands' statutory profits are better than its underlying earnings power. The good news is that, its earnings per share increased by 16% in the last year. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. So while earnings quality is important, it's equally important to consider the risks facing Smith & Wesson Brands at this point in time. When we did our research, we found 3 warning signs for Smith & Wesson Brands (1 is potentially serious!) that we believe deserve your full attention.

Today we've zoomed in on a single data point to better understand the nature of Smith & Wesson Brands' 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. 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.