The market seemed underwhelmed by the solid earnings posted by Signify N.V. (AMS:LIGHT) recently. Along with the solid headline numbers, we think that investors have some reasons for optimism.

See our latest analysis for Signify

The Impact Of Unusual Items On Profit

To properly understand Signify's profit results, we need to consider the €55m expense attributed to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. 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 Signify 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 Signify's Profit Performance

Because unusual items detracted from Signify'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 Signify's earnings potential is at least as good as it seems, and maybe even better! And the EPS is up 61% over the last twelve months. 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. At Simply Wall St, we found 1 warning sign for Signify and we think they deserve your attention.

This note has only looked at a single factor that sheds light on the nature of Signify's profit. But there are plenty of other ways to inform your opinion of a company. Some people consider a high return on equity to be a good sign of a quality business. 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.