Century Communities' (NYSE:CCS) Conservative Accounting Might Explain Soft Earnings

Investors were disappointed with the weak earnings posted by Century Communities, Inc. (NYSE:CCS ). Despite the soft profit numbers, our analysis has optimistic about the overall quality of the income statement.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Century Communities' profit was reduced by US$34m, due to unusual items, over the last year. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. 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. If Century Communities doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

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 Century Communities' Profit Performance

Because unusual items detracted from Century Communities' earnings over the last year, you could argue that we can expect an improved result in the current quarter. Based on this observation, we consider it likely that Century Communities' statutory profit actually understates its earnings potential! Unfortunately, though, its earnings per share actually fell back over 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. To that end, you should learn about the 3 warning signs we've spotted with Century Communities (including 1 which doesn't sit too well with us).

This note has only looked at a single factor that sheds light on the nature of Century Communities' 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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.