07-10-2021, 12:33 PM
Non-GAAP is a dangerous thing to look at since pretty much anything goes for an "adjustment" these days, and I constantly see companies where the non-GAAP is by default higher than the GAAP one. I get that sometimes there is a need for adjustments (such as mergers etc) but more often than not I see companies constantly having these same adjustments in there, and surprisingly almost always the non-GAAP EPS is higher than the GAAP EPS.
There is a reason for GAAP. And I find it significantly better to look at the GAAP EPS and then look at the adjustments separately to see if the things adjusted for are truly one time items or not. Take one of the greatest DGI companies out there: JNJ. The non-GAAP EPS is always higher than the GAAP EPS and things such as legal costs are being adjusted for, every single year. As if JNJ being involved in a lawsuit would be something of a irregular "once in a decade" thing. No, getting sued for a company like JNJ is part of business and there will always be legal cases against them, there will be legal fees every single year. All those lawyers, other legal fees, and settlements etc are being paid by JNJ all the time, yet conveniently they cease to exist when you look at the non-GAAP numbers. It's "one time items" after all.
Same kinda goes for "forward EPS". It's just an estimate by an analyst. And if we were convinced that analysts are right more often than not then we wouldn't be on this forum and the majority of our portfolio would be compromised of all sorts of actively managed funds.
There is a reason for GAAP. And I find it significantly better to look at the GAAP EPS and then look at the adjustments separately to see if the things adjusted for are truly one time items or not. Take one of the greatest DGI companies out there: JNJ. The non-GAAP EPS is always higher than the GAAP EPS and things such as legal costs are being adjusted for, every single year. As if JNJ being involved in a lawsuit would be something of a irregular "once in a decade" thing. No, getting sued for a company like JNJ is part of business and there will always be legal cases against them, there will be legal fees every single year. All those lawyers, other legal fees, and settlements etc are being paid by JNJ all the time, yet conveniently they cease to exist when you look at the non-GAAP numbers. It's "one time items" after all.
Same kinda goes for "forward EPS". It's just an estimate by an analyst. And if we were convinced that analysts are right more often than not then we wouldn't be on this forum and the majority of our portfolio would be compromised of all sorts of actively managed funds.