Earnings Troubles May Signal Larger Issues for Sajo Industries (KRX:007160) Shareholders

A lackluster earnings announcement from Sajo Industries Company Limited (KRX:007160) last week didn't sink the stock price. However, we believe that investors should be aware of some underlying factors which may be of concern.

Check out our latest analysis for Sajo Industries

The Impact Of Unusual Items On Profit

For anyone who wants to understand Sajo Industries' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from ₩48b worth of 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. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. Which is hardly surprising, given the name. Sajo Industries had a rather significant contribution from unusual items relative to its profit to September 2024. 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 Sajo Industries.

Our Take On Sajo Industries' Profit Performance

As we discussed above, we think the significant positive unusual item makes Sajo Industries' earnings a poor guide to its underlying profitability. As a result, we think it may well be the case that Sajo Industries' underlying earnings power is lower than its statutory profit. But at least holders can take some solace from the 62% per annum growth in EPS for the last three. 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. Case in point: We've spotted 3 warning signs for Sajo Industries you should be mindful of and 2 of these are concerning.

This note has only looked at a single factor that sheds light on the nature of Sajo Industries' 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.