Why Petrolina (Holdings) (CSE:PHL)’s shaky profits are just the beginning of the trouble

Petrolina (Holdings) Public Ltd (CSE:PHL) The recent weak earnings report hasn’t caused a major stock move. However, we believe that investors should be aware of a number of underlying factors that could be concerning.

See our latest analysis for Petrolina (Holdings)

CSE: PHL earnings and revenue history May 3, 2024

An unusual tax situation

We see that Petrolina (Holdings) has received a tax benefit of €389,000. This makes sense because companies typically pay taxes rather than receiving tax benefits. Receiving a tax benefit is of course a good thing in itself. The tricky thing, however, is that these types of benefits only have an effect in the year in which they are booked and are often one-off in nature. Assuming the tax break isn’t repeated every year, we could see profitability drop noticeably, all else remaining the same.

Remark: we always recommend that investors check balance sheet strength. Click here to go to our balance sheet analysis of Petrolina (Holdings).

Our view on Petrolina (Holdings) earnings performance.

Petrolina (Holdings) reported in its latest report that it received a tax benefit instead of paying taxes. As a result, we don’t think the profit result, including the tax increase, is a good indicator of sustainable profit levels. Therefore, it seems possible to us that Petrolina’s (Holdings) actual underlying earnings power is actually less than its statutory earnings. Nevertheless, it’s still worth noting that earnings per share have grown 18% over the past three years. Of course, we’ve only just scratched the surface when it comes to analyzing revenue; one can also take into account margins, forecast growth and return on investments, among other things. So while the quality of earnings is important, it’s just as important to consider the risks Petrolina (Holdings) is facing right now. Our analysis shows 5 warning signs for Petrolina (Holdings) (2 should not be ignored!) and we highly recommend checking out these bad boys before investing.

This note only looks at a single factor that sheds light on the nature of Petrolina (Holdings) profits. But there are plenty of other ways to substantiate your opinion about a company. Some people consider a high return on equity as a good sign of a quality company. So you might want to see this free collection of companies with high return on equity, or this list of stocks that insiders are buying.

Valuation is complex, but we help make it simple.

Find out if Petrolina (Holdings) may be over or undervalued by viewing our comprehensive analysis, including: fair value estimates, risks and cautions, dividends, insider transactions and financial health.

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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.