Ornapaper Berhad's (KLSE:ORNA) Earnings Are Weaker Than They Seem

Despite posting some strong earnings, the market for Ornapaper Berhad's (KLSE:ORNA) stock hasn't moved much. We did some digging, and we found some concerning factors in the details.

View our latest analysis for Ornapaper Berhad

The Impact Of Unusual Items On Profit

To properly understand Ornapaper Berhad's profit results, we need to consider the RM863k gain attributed to unusual items. 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 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'. 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 Ornapaper Berhad.

Our Take On Ornapaper Berhad's Profit Performance

Arguably, Ornapaper Berhad's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Ornapaper Berhad's true underlying earnings power is actually less than its statutory profit. But the happy news is that, while acknowledging we have to look beyond the statutory numbers, those numbers are still improving, with EPS growing at a very high rate over 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. So while earnings quality is important, it's equally important to consider the risks facing Ornapaper Berhad at this point in time. Case in point: We've spotted 3 warning signs for Ornapaper Berhad you should be mindful of and 1 of these bad boys makes us a bit uncomfortable.

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