The Strong Earnings Posted By Paratech (KOSDAQ:033540) Are A Good Indication Of The Strength Of The Business

The subdued stock price reaction suggests that Paratech Company Limited's (KOSDAQ:033540) strong earnings didn't offer any surprises. Our analysis suggests that investors might be missing some promising details.

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How Do Unusual Items Influence Profit?

To properly understand Paratech's profit results, we need to consider the ₩391m expense attributed to unusual items. 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. Assuming those unusual expenses don't come up again, we'd therefore expect Paratech to produce a higher profit next year, all else being equal.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Paratech.

Our Take On Paratech's Profit Performance

Unusual items (expenses) detracted from Paratech's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Paratech's statutory profit actually understates its earnings potential! And it's also positive that the company showed enough improvement to book a profit this year, after losing money last year. 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. So while earnings quality is important, it's equally important to consider the risks facing Paratech at this point in time. Case in point: We've spotted 2 warning signs for Paratech you should be mindful of and 1 of them can't be ignored.

This note has only looked at a single factor that sheds light on the nature of Paratech'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 with high insider ownership.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.