Tex Cycle Technology (M) Berhad's (KLSE:TEXCYCL) Solid Profits Have Weak Fundamentals

Investors were disappointed with Tex Cycle Technology (M) Berhad's (KLSE:TEXCYCL) earnings, despite the strong profit numbers. Our analysis uncovered some concerning factors that we believe the market might be paying attention to.

See our latest analysis for Tex Cycle Technology (M) Berhad

The Impact Of Unusual Items On Profit

To properly understand Tex Cycle Technology (M) Berhad's profit results, we need to consider the RM2.9m 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. We can see that Tex Cycle Technology (M) Berhad's positive unusual items were quite significant relative to its profit in the year to December 2022. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Tex Cycle Technology (M) Berhad.

Our Take On Tex Cycle Technology (M) Berhad's Profit Performance

As we discussed above, we think the significant positive unusual item makes Tex Cycle Technology (M) Berhad's earnings a poor guide to its underlying profitability. For this reason, we think that Tex Cycle Technology (M) Berhad's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. But on the bright side, its earnings per share have grown at an extremely impressive rate over the last three years. 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'd like to know more about Tex Cycle Technology (M) Berhad as a business, it's important to be aware of any risks it's facing. To help with this, we've discovered 3 warning signs (1 doesn't sit too well with us!) that you ought to be aware of before buying any shares in Tex Cycle Technology (M) Berhad.

This note has only looked at a single factor that sheds light on the nature of Tex Cycle Technology (M) Berhad'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.

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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.