Paragon Union Berhad's (KLSE:PARAGON) Promising Earnings May Rest On Soft Foundations

Despite posting some strong earnings, the market for Paragon Union Berhad's (KLSE:PARAGON) stock hasn't moved much. Our analysis suggests that shareholders have noticed something concerning in the numbers.

Check out our latest analysis for Paragon Union Berhad

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Paragon Union Berhad's profit received a boost of RM13m in unusual items, over the last year. 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, after all, that's exactly what the accounting terminology implies. We can see that Paragon Union Berhad's positive unusual items were quite significant relative to its profit in the year to September 2023. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Paragon Union Berhad.

Our Take On Paragon Union Berhad's Profit Performance

As we discussed above, we think the significant positive unusual item makes Paragon Union Berhad's earnings a poor guide to its underlying profitability. As a result, we think it may well be the case that Paragon Union Berhad's underlying earnings power is lower than its statutory profit. The good news is that it earned a profit in the last twelve months, despite its previous loss. 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 while earnings quality is important, it's equally important to consider the risks facing Paragon Union Berhad at this point in time. Every company has risks, and we've spotted 2 warning signs for Paragon Union Berhad you should know about.

Today we've zoomed in on a single data point to better understand the nature of Paragon Union 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.

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.