Kwang Dong Pharmaceutical's (KRX:009290) Solid Profits Have Weak Fundamentals

Kwang Dong Pharmaceutical Co., Ltd. (KRX:009290) just reported some strong earnings, and the market reacted accordingly with a healthy uplift in the share price. However, we think that shareholders may be missing some concerning details in the numbers.

View our latest analysis for Kwang Dong Pharmaceutical

The Impact Of Unusual Items On Profit

For anyone who wants to understand Kwang Dong Pharmaceutical's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from ₩9.4b 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, after all, that's exactly what the accounting terminology implies. 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).

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Kwang Dong Pharmaceutical.

Our Take On Kwang Dong Pharmaceutical's Profit Performance

Arguably, Kwang Dong Pharmaceutical's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Kwang Dong Pharmaceutical's statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 55% 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. If you want to do dive deeper into Kwang Dong Pharmaceutical, you'd also look into what risks it is currently facing. For example - Kwang Dong Pharmaceutical has 2 warning signs we think you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Kwang Dong Pharmaceutical'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.

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.