SK hynix's (KRX:000660) Promising Earnings May Rest On Soft Foundations

SK hynix Inc.'s (KRX:000660) stock was strong after they recently reported robust earnings. However, we think that shareholders may be missing some concerning details in the numbers.

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How Do Unusual Items Influence Profit?

Importantly, our data indicates that SK hynix's profit received a boost of ₩6.8t in unusual items, over the last year. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's as you'd expect, given these boosts are described as 'unusual'. If SK hynix doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

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 SK hynix's Profit Performance

Arguably, SK hynix's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that SK hynix's true underlying earnings power is actually less than its statutory profit. 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. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. If you want to do dive deeper into SK hynix, you'd also look into what risks it is currently facing. Case in point: We've spotted 1 warning sign for SK hynix you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of SK hynix's 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. While it might take a little research on your behalf, you may find this free collection of companies boasting high return on equity, or this list of stocks with significant insider holdings to be useful.

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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.