The market wasn't impressed with the soft earnings from Chegg, Inc. (NYSE:CHGG) recently. We did some further digging and think they have a few more reasons to be concerned beyond the statutory profit.
The Impact Of Unusual Items On Profit
To properly understand Chegg's profit results, we need to consider the US$33m 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. And, after all, that's exactly what the accounting terminology implies. Chegg had a rather significant contribution from unusual items relative to its profit to March 2024. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.
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 Chegg's Profit Performance
As we discussed above, we think the significant positive unusual item makes Chegg's earnings a poor guide to its underlying profitability. For this reason, we think that Chegg's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. Sadly, its EPS was down over the last twelve months. 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. 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. Be aware that Chegg is showing 3 warning signs in our investment analysis and 1 of those makes us a bit uncomfortable...
Today we've zoomed in on a single data point to better understand the nature of Chegg's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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 that insiders are buying to be useful.
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