We Think That There Are Some Issues For Cheryong IndustrialLtd (KOSDAQ:147830) Beyond Its Promising Earnings

Cheryong Industrial Co.,Ltd.'s (KOSDAQ:147830) robust recent earnings didn't do much to move the stock. We think this is due to investors looking beyond the statutory profits and being concerned with what they see.

We've discovered 1 warning sign about Cheryong IndustrialLtd. View them for free.

How Do Unusual Items Influence Profit?

To properly understand Cheryong IndustrialLtd's profit results, we need to consider the ₩927m gain attributed to unusual items. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. And that's as you'd expect, given these boosts are described as 'unusual'. If Cheryong IndustrialLtd doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

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

Our Take On Cheryong IndustrialLtd's Profit Performance

Arguably, Cheryong IndustrialLtd's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Cheryong IndustrialLtd's true underlying earnings power is actually less than its statutory profit. The good news is that, its earnings per share increased by 41% 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 while earnings quality is important, it's equally important to consider the risks facing Cheryong IndustrialLtd at this point in time. In terms of investment risks, we've identified 1 warning sign with Cheryong IndustrialLtd, and understanding it should be part of your investment process.

Today we've zoomed in on a single data point to better understand the nature of Cheryong IndustrialLtd's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. Some people consider a high return on equity to be a good sign of a quality business. 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.