Dongyang S.TecLtd's (KOSDAQ:060380) Promising Earnings May Rest On Soft Foundations

Dongyang S.Tec Co.,Ltd's (KOSDAQ:060380) robust earnings report didn't manage to move the market for its stock. We did some digging, and we found some concerning factors in the details.

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The Impact Of Unusual Items On Profit

For anyone who wants to understand Dongyang S.TecLtd's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from ₩650m worth of unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. 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 Dongyang S.TecLtd 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 Dongyang S.TecLtd.

Our Take On Dongyang S.TecLtd's Profit Performance

We'd posit that Dongyang S.TecLtd's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Because of this, we think that it may be that Dongyang S.TecLtd's statutory profits are better than its underlying earnings power. But the happy news is that, while acknowledging we have to look beyond the statutory numbers, those numbers are still improving, with EPS growing at a very high rate over 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 want to do dive deeper into Dongyang S.TecLtd, you'd also look into what risks it is currently facing. Our analysis shows 4 warning signs for Dongyang S.TecLtd (2 are concerning!) and we strongly recommend you look at them before investing.

Today we've zoomed in on a single data point to better understand the nature of Dongyang S.TecLtd'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 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.