There May Be Underlying Issues With The Quality Of Freshpet's (NASDAQ:FRPT) Earnings

Simply Wall St · 6d ago

Unsurprisingly, Freshpet, Inc.'s (NASDAQ:FRPT) stock price was strong on the back of its healthy earnings report. However, our analysis suggests that shareholders may be missing some factors that indicate the earnings result was not as good as it looked.

Check out our latest analysis for Freshpet

NasdaqGM:FRPT Earnings and Revenue History May 13th 2024

The Impact Of Unusual Items On Profit

For anyone who wants to understand Freshpet's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from US$9.3m worth of unusual items. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's as you'd expect, given these boosts are described as 'unusual'. We can see that Freshpet's positive unusual items were quite significant relative to its profit in the year to March 2024. All else being equal, this would likely have the effect of making the statutory profit a poor guide to 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 Freshpet's Profit Performance

As we discussed above, we think the significant positive unusual item makes Freshpet's earnings a poor guide to its underlying profitability. As a result, we think it may well be the case that Freshpet's underlying earnings power is lower than its statutory profit. The good news is that it earned a profit in the last twelve months, despite its previous loss. 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. So while earnings quality is important, it's equally important to consider the risks facing Freshpet at this point in time. In terms of investment risks, we've identified 1 warning sign with Freshpet, 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 Freshpet'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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.