Lion Industries Corporation Berhad's (KLSE:LIONIND) Promising Earnings May Rest On Soft Foundations

Lion Industries Corporation Berhad's (KLSE:LIONIND) robust earnings report didn't manage to move the market for its stock. Our analysis suggests that this might be because shareholders have noticed some concerning underlying factors.

Check out our latest analysis for Lion Industries Corporation Berhad

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Lion Industries Corporation Berhad's profit received a boost of RM192m in unusual items, over the last year. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. And that's as you'd expect, given these boosts are described as 'unusual'. Lion Industries Corporation Berhad had a rather significant contribution from unusual items relative to its profit to June 2021. 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 Lion Industries Corporation Berhad.

Our Take On Lion Industries Corporation Berhad's Profit Performance

As we discussed above, we think the significant positive unusual item makes Lion Industries Corporation Berhad's earnings a poor guide to its underlying profitability. For this reason, we think that Lion Industries Corporation 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. On the bright side, the company showed enough improvement to book a profit this year, after losing money 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. You'd be interested to know, that we found 2 warning signs for Lion Industries Corporation Berhad and you'll want to know about these.

This note has only looked at a single factor that sheds light on the nature of Lion Industries Corporation Berhad's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. Some people consider a high return on equity to be a good sign of a quality business. 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 that insiders are buying to be useful.

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.

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