LTKM Berhad's (KLSE:LTKM) Profits Appear To Have Quality Issues

LTKM Berhad's (KLSE:LTKM) robust recent earnings didn't do much to move the stock. We believe that shareholders have noticed some concerning factors beyond the statutory profit numbers.

Check out our latest analysis for LTKM Berhad

How Do Unusual Items Influence Profit?

For anyone who wants to understand LTKM Berhad's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from RM4.7m worth of unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. Which is hardly surprising, given the name. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

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

Our Take On LTKM Berhad's Profit Performance

We'd posit that LTKM Berhad's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Therefore, it seems possible to us that LTKM Berhad's true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 7.4% EPS growth in 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'd like to know more about LTKM Berhad as a business, it's important to be aware of any risks it's facing. While conducting our analysis, we found that LTKM Berhad has 2 warning signs and it would be unwise to ignore these.

This note has only looked at a single factor that sheds light on the nature of LTKM 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. 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.