Tan Chong Motor Holdings Berhad's (KLSE:TCHONG) Earnings Are Weaker Than They Seem

Unsurprisingly, Tan Chong Motor Holdings Berhad's (KLSE:TCHONG) stock price was strong on the back of its healthy earnings report. We did some analysis and think that investors are missing some details hidden beneath the profit numbers.

Our analysis indicates that TCHONG is potentially overvalued!

The Impact Of Unusual Items On Profit

For anyone who wants to understand Tan Chong Motor Holdings Berhad's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from RM7.3m worth of unusual items. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. 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 Tan Chong Motor Holdings Berhad 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 Tan Chong Motor Holdings Berhad's Profit Performance

Arguably, Tan Chong Motor Holdings Berhad's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Tan Chong Motor Holdings Berhad's statutory profits are better than its underlying earnings power. On the bright side, the company showed enough improvement to book a profit this year, after losing money 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. In terms of investment risks, we've identified 1 warning sign with Tan Chong Motor Holdings Berhad, and understanding it should be part of your investment process.

This note has only looked at a single factor that sheds light on the nature of Tan Chong Motor Holdings Berhad's profit. But there are plenty of other ways to inform your opinion of a company. 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.

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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.