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Sandesh’s (NSE:SANDESH) earnings are weaker than they appear

The Sandesh Limited (NSE:SANDESH) just reported some strong gains, and the market responded accordingly with a healthy share price increase. However, our analysis shows that shareholders may be overlooking some factors that indicate the earnings performance was not as good as it seemed.

Check out our latest analysis for Sandesh

NSEI: SANDESH earnings and revenue history June 6, 2024

Operating income or not?

Most companies classify their income as ‘operating income’, which comes from the normal course of business, and other income, including, for example, government subsidies. Often non-operating sales peaks are not repeated, so it is wise to be cautious when non-operating sales have made a very large contribution to total profits. Importantly, non-operating revenues often come with associated ongoing costs, so they can increase profits by flowing them directly into the bottom line, thereby reducing operational business seem better than it actually is. Notably, Sandesh saw a significant increase in non-operational revenues over the past year. Non-operating revenue rose to ₹1.66 billion this year from ₹387.9 million last year. If this non-operational turnover does not materialize in the current year, there is a real risk that the profit result will be negatively affected. Sometimes you can get a better idea of ​​a company’s underlying earnings potential by ruling out unusual increases in non-operating income.

Remark: we always recommend that investors check balance sheet strength. Click here to go to our balance sheet analysis of Sandesh.

Our view on Sandesh’s earnings performance

Given that Sandesh has seen a large increase in non-operating income over the last twelve months, we would be very cautious about relying too heavily on statutory profit figures, which would have benefited from this potentially unsustainable change. For this reason, we think Sandesh’s statutory profits may be a poor guide to its underlying earnings power, and could give investors too positive an impression of the company. But on the bright side, earnings per share have grown at an extremely impressive pace over the past three years. The aim of this article was to assess how confident we can be that statutory earnings reflect the company’s potential, but there’s plenty more to think about. While profits are important, the balance sheet is also another area to consider. You can see our latest analysis on Sandesh’s balance sheet health here.

This note has looked at only a single factor that sheds light on the nature of Sandesh’s profits. But there are plenty of other ways to substantiate your opinion about 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 look for stocks that insiders are buying. So you might want to see this free collection of companies with high return on equity, or this list of stocks with high insider ownership.

Valuation is complex, but we help make it simple.

Find out if Sandesh is potentially over or undervalued by checking out our comprehensive analysis, including: fair value estimates, risks and cautions, dividends, insider transactions and financial health.

View the Free Analysis

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This article from Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only an unbiased methodology and our articles are not intended as financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. We aim to provide you with targeted, long-term analysis based on fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or quality material. Simply Wall St has no positions in the stocks mentioned.