Warning Signs for NCS Multistage Holdings' Earnings Potential

NCS Multistage Holdings reported weak earnings, but a tax benefit of $1m is noteworthy. The tax benefit may temporarily boost statutory profit, but subsequent profit may drop. Statutory profit may overstate the company's sustainable earnings power, and analysts' forecasts show a possible decline in profitability.

NCS Multistage Holdings, Inc. (NASDAQ: NCSM) recently reported weak earnings, but a notable tax benefit of $1 million was highlighted in the report. While the tax benefit temporarily boosted the company's statutory profit, it may not be recurring, raising concerns about the sustainability of the earnings. Analysts have forecasted a potential decline in profitability, suggesting that the statutory profit may overstate the company's sustainable earnings power.

According to Simply Wall St [1], NCS Multistage Holdings received a tax benefit instead of paying tax, which is a significant factor to consider. The tax benefit can temporarily inflate statutory profit, but if it is not repeated, future profit levels may drop. This could imply an increased risk that the company's statutory profit overstates its actual earnings power.

Stonegate Capital Partners [2] also reported that NCS Multistage Holdings' second-quarter revenue rose 23% year-over-year to $36.5 million, driven by strong U.S. and international activity. However, the adjusted gross margins came in at 35.7%, down from 40.3% in the previous quarter. The company also closed the acquisition of ResMetrics, adding a high-margin diagnostics business expected to contribute $4-5 million in revenue and $1-1.5 million in EBITDA in FY25.

While the tax benefit is a positive for the company in the short term, investors should be cautious and consider the long-term implications. It is essential to assess whether the company's earnings are sustainable and whether the statutory profit accurately reflects the company's potential.

References:
[1] https://uk.finance.yahoo.com/news/weak-statutory-earnings-may-not-130850054.html
[2] https://finance.yahoo.com/news/stonegate-updates-coverage-ncs-multistage-203400741.html