Investors Shouldn't Be Too Comfortable With LONGTU KOREA's (KOSDAQ:060240) Robust Earnings

LONGTU KOREA Inc.'s (KOSDAQ:060240) robust earnings report didn't manage to move the market for its stock. Our analysis suggests that this might be because shareholders have noticed some concerning underlying factors.

View our latest analysis for LONGTU KOREA

How Do Unusual Items Influence Profit?

To properly understand LONGTU KOREA's profit results, we need to consider the ₩4.9b gain attributed to unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. 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 that's as you'd expect, given these boosts are described as 'unusual'. We can see that LONGTU KOREA's positive unusual items were quite significant relative to its profit in the year to December 2020. 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 LONGTU KOREA.

Our Take On LONGTU KOREA's Profit Performance

As we discussed above, we think the significant positive unusual item makes LONGTU KOREA's earnings a poor guide to its underlying profitability. As a result, we think it may well be the case that LONGTU KOREA's underlying earnings power is lower than its statutory profit. But at least holders can take some solace from the 69% EPS growth in the last year. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. 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. You'd be interested to know, that we found 1 warning sign for LONGTU KOREA and you'll want to know about this.

This note has only looked at a single factor that sheds light on the nature of LONGTU KOREA's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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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