We Think That There Are Issues Underlying W T K Holdings Berhad's (KLSE:WTK) Earnings

W T K Holdings Berhad (KLSE:WTK) announced strong profits, but the stock was stagnant. We did some digging, and we found some concerning factors in the details.

See our latest analysis for W T K Holdings Berhad

How Do Unusual Items Influence Profit?

For anyone who wants to understand W T K Holdings Berhad's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from RM18m worth of unusual items. 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. Which is hardly surprising, given the name. W T K Holdings Berhad had a rather significant contribution from unusual items relative to its profit to June 2022. 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 W T K Holdings Berhad.

Our Take On W T K Holdings Berhad's Profit Performance

As previously mentioned, W T K Holdings Berhad's large boost from unusual items won't be there indefinitely, so its statutory earnings are probably a poor guide to its underlying profitability. For this reason, we think that W T K Holdings 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. 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 W T K Holdings Berhad at this point in time. For example - W T K Holdings Berhad has 3 warning signs we think you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of W T K Holdings 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.

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.