Cabot's (NYSE:CBT) Shareholders May Want To Dig Deeper Than Statutory Profit

Simply Wall St · 05/13 10:51

The market for Cabot Corporation's (NYSE:CBT) stock was strong after it released a healthy earnings report last week. However, we think that shareholders should be cautious as we found some worrying factors underlying the profit.

View our latest analysis for Cabot

NYSE:CBT Earnings and Revenue History May 13th 2024

How Do Unusual Items Influence Profit?

To properly understand Cabot's profit results, we need to consider the US$57m gain attributed to unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. 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'. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

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 Cabot's Profit Performance

Arguably, Cabot's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Cabot's statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 42% EPS growth in the last year. 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 Cabot at this point in time. For example, we've discovered 2 warning signs that you should run your eye over to get a better picture of Cabot.

This note has only looked at a single factor that sheds light on the nature of Cabot'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.