Investors Shouldn't Be Too Comfortable With Halcyon Agri's (SGX:5VJ) Robust Earnings

Halcyon Agri Corporation Limited (SGX:5VJ) announced strong profits, but the stock was stagnant. Our analysis suggests that shareholders have noticed something concerning in the numbers.

See our latest analysis for Halcyon Agri

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Halcyon Agri's profit received a boost of US$17m 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 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, after all, that's exactly what the accounting terminology implies. We can see that Halcyon Agri's positive unusual items were quite significant relative to its profit in the year to December 2021. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

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

Our Take On Halcyon Agri's Profit Performance

As we discussed above, we think the significant positive unusual item makes Halcyon Agri's earnings a poor guide to its underlying profitability. For this reason, we think that Halcyon Agri'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 while earnings quality is important, it's equally important to consider the risks facing Halcyon Agri at this point in time. When we did our research, we found 3 warning signs for Halcyon Agri (2 are significant!) that we believe deserve your full attention.

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

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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.