KT&G's (KRX:033780) Earnings Are Weaker Than They Seem

KT&G Corporation (KRX:033780) announced strong profits, but the stock was stagnant. We did some digging, and we found some concerning factors in the details.

View our latest analysis for KT&G

The Impact Of Unusual Items On Profit

For anyone who wants to understand KT&G's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from ₩208b worth of unusual items. 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. Which is hardly surprising, given the name. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

Our Take On KT&G's Profit Performance

Arguably, KT&G's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that KT&G's statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 14% EPS growth in the 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. If you'd like to know more about KT&G as a business, it's important to be aware of any risks it's facing. While conducting our analysis, we found that KT&G has 1 warning sign and it would be unwise to ignore this.

Today we've zoomed in on a single data point to better understand the nature of KT&G'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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