Seoul City Gas' (KRX:017390) Solid Earnings May Rest On Weak Foundations

The recent earnings posted by Seoul City Gas Co., Ltd. (KRX:017390) were solid, but the stock didn't move as much as we expected. We believe that shareholders have noticed some concerning factors beyond the statutory profit numbers.

View our latest analysis for Seoul City Gas

How Do Unusual Items Influence Profit?

To properly understand Seoul City Gas' profit results, we need to consider the ₩659m gain attributed to unusual items. 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. Which is hardly surprising, given the name. If Seoul City Gas 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 Seoul City Gas.

Our Take On Seoul City Gas' Profit Performance

Arguably, Seoul City Gas' statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Seoul City Gas' statutory profits are better than its underlying earnings power. The good news is that, its earnings per share increased by 14% 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. To help with this, we've discovered 2 warning signs (1 is a bit concerning!) that you ought to be aware of before buying any shares in Seoul City Gas.

Today we've zoomed in on a single data point to better understand the nature of Seoul City Gas' profit. But there are plenty of other ways to inform your opinion of a company. 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 that insiders are buying.

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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.