Last week’s earnings announcement from For more information, visit: Advanced Micro Devices, Inc. (NASDAQ:AMD) was disappointing for investors despite strong numbers. We did some digging and found some troubling underlying issues.
Check out our latest analysis for Advanced Micro Devices
An unusual tax situation
We can see that Advanced Micro Devices received a tax benefit of US$347 million. This is of course somewhat unusual, as it is more common for companies to pay taxes than receive tax benefits! Receiving a tax benefit is of course a good thing in itself. And as the company has lost money before, it may also simply indicate the realisation of previous tax losses. The devil is in the details, however: these types of benefits only have an impact in the year in which they are recorded, and are often one-off in nature. In the likely event that the tax benefit is not repeated, we would expect statutory profit levels to decline, at least unless strong growth is achieved. So, while we think it’s great to receive a tax benefit, it tends to imply an increased risk that statutory profit overstates the company’s sustainable earnings power.
You may be wondering what analysts are predicting in terms of future profitability. Fortunately, you can click here to see an interactive chart depicting future profitability based on their estimates.
Our assessment of Advanced Micro Devices’ earnings development
Advanced Micro Devices stated in its last report that it received a tax benefit and paid no taxes. Therefore, we don’t think its earnings result, which includes this tax benefit, is a good indicator of its sustainable profit levels. Therefore, it seems possible to us that Advanced Micro Devices’ true underlying earnings power is actually less than its statutory profit. On the positive side, the company has shown enough improvement to post a profit this year, after losing money last year. Of course, we’ve only scratched the surface when analyzing its earnings; you might also consider margins, forecast growth and return on capital, among other things. While it’s really important to consider how well a company’s statutory profits represent its true earnings power, it’s also worth taking a look at what analysts are forecasting for the future. Luckily, you can check out analyst forecasts by clicking here.
Today we’ve focused on a single data point to better understand the nature of Advanced Micro Devices’ earnings. But there are many other ways to form an opinion about a company. For example, many people consider a high return on equity to indicate a favorable business situation, while others like to “follow the money” and look for stocks that insiders are buying. Although this may require a little research, you may find the following free Collection of companies with high return on equity or this list of stocks with significant insider holdings may prove useful.
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This Simply Wall St article is of a general nature. We comment solely on the basis of historical data and analyst forecasts, using an unbiased methodology. Our articles do not constitute financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative materials. Simply Wall St does not hold any of the stocks mentioned.
