Daejung Chemicals & Metals' (KOSDAQ:120240) Anemic Earnings Might Be Worse Than You Think

The subdued market reaction suggests that Daejung Chemicals & Metals Co., Ltd.'s (KOSDAQ:120240) recent earnings didn't contain any surprises. Our analysis suggests that along with soft profit numbers, investors should be aware of some other underlying weaknesses in the numbers.

See our latest analysis for Daejung Chemicals & Metals

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Daejung Chemicals & Metals' profit received a boost of ₩1.9b in unusual items, over the last year. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. 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 Daejung Chemicals & Metals 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 Daejung Chemicals & Metals.

Our Take On Daejung Chemicals & Metals' Profit Performance

Arguably, Daejung Chemicals & Metals' statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Daejung Chemicals & Metals' statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 54% 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. So while earnings quality is important, it's equally important to consider the risks facing Daejung Chemicals & Metals at this point in time. For example, we've discovered 1 warning sign that you should run your eye over to get a better picture of Daejung Chemicals & Metals.

This note has only looked at a single factor that sheds light on the nature of Daejung Chemicals & Metals' 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.