Should You Use Silicon Motion Technology’s (NASDAQ:SIMO) Statutory Earnings To Analyse It?

Many investors consider it preferable to invest in profitable companies over unprofitable ones, because profitability suggests a business is sustainable. That said, the current statutory profit is not always a good guide to a company’s underlying profitability. In this article, we’ll look at how useful this year’s statutory profit is, when analysing Silicon Motion Technology (NASDAQ:SIMO).

It’s good to see that over the last twelve months Silicon Motion Technology made a profit of US$83.8m on revenue of US$533.3m. Below, you can see that both its revenue and its profit have fallen over the last three years.

See our latest analysis for Silicon Motion Technology

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NasdaqGS:SIMO Earnings and Revenue History September 8th 2020

Of course, it is only sensible to look beyond the statutory profits and question how well those numbers represent the sustainable earnings power of the business. This article will discuss how unusual items have impacted Silicon Motion Technology’s most recent profit results. 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.

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Silicon Motion Technology’s profit was reduced by US$15.9m, 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 that’s hardly a surprise given these line items are considered unusual. If Silicon Motion Technology doesn’t see those unusual expenses repeat, then all else being equal we’d expect its profit to increase over the coming year.

Our Take On Silicon Motion Technology’s Profit Performance

Because unusual items detracted from Silicon Motion Technology’s earnings over the last year, you could argue that we can expect an improved result in the current quarter. Because of this, we think Silicon Motion Technology’s earnings potential is at least as good as it seems, and maybe even better! And on top of that, its earnings per share increased by 8.1% in the last year. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company’s potential, but there is plenty more to consider. So if you’d like to dive deeper into this stock, it’s crucial to consider any risks it’s facing. For example – Silicon Motion Technology has 2 warning signs we think you should be aware of.

Today we’ve zoomed in on a single data point to better understand the nature of Silicon Motion Technology’s profit. But there are plenty of other ways to inform your opinion of a company. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to ‘follow the money’ and search out stocks that insiders are buying. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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