Despite posting some strong earnings, the market for SouthGobi Resources Ltd.'s (TSE:SGQ) stock hasn't moved much. Our analysis suggests that this might be because shareholders have noticed some concerning underlying factors.
View our latest analysis for SouthGobi Resources
The Impact Of Unusual Items On Profit
Importantly, our data indicates that SouthGobi Resources' profit received a boost of US$21m in unusual items, over the last year. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And, after all, that's exactly what the accounting terminology implies. We can see that SouthGobi Resources' positive unusual items were quite significant relative to its profit in the year to March 2021. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.
Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of SouthGobi Resources.
Our Take On SouthGobi Resources' Profit Performance
As previously mentioned, SouthGobi Resources' large boost from unusual items won't be there indefinitely, so its statutory earnings are probably a poor guide to its underlying profitability. For this reason, we think that SouthGobi Resources' statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. For example, SouthGobi Resources has 4 warning signs (and 2 which can't be ignored) we think you should know about.
This note has only looked at a single factor that sheds light on the nature of SouthGobi Resources' 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. While it might take a little research on your behalf, you may find this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying to be useful.
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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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About TSXV:SGQ
SouthGobi Resources
Operates as an integrated coal mining, development, and exploration company in Mongolia and Hong Kong.
Good value with acceptable track record.
