Is There More To The Story Than Low Keng Huat (Singapore)'s (SGX:F1E) Earnings Growth?

Statistically speaking, it is less risky to invest in profitable companies than in unprofitable ones. That said, the current statutory profit is not always a good guide to a company's underlying profitability. In this article, we'll look at how useful this year's statutory profit is, when analysing Low Keng Huat (Singapore) (SGX:F1E).

It's good to see that over the last twelve months Low Keng Huat (Singapore) made a profit of S$63.8m on revenue of S$52.3m. Interestingly, even though its revenue has been flat over the last few years, its profit has actually increased, as you can see, below.

View our latest analysis for Low Keng Huat (Singapore)

Not all profits are equal, and we can learn more about the nature of a company's past profitability by diving deeper into the financial statements. This article will focus on the impact unusual items have had on Low Keng Huat (Singapore)'s statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Low Keng Huat (Singapore).

How Do Unusual Items Influence Profit?

For anyone who wants to understand Low Keng Huat (Singapore)'s profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from S$15m worth of 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 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. Which is hardly surprising, given the name. Low Keng Huat (Singapore) had a rather significant contribution from unusual items relative to its profit to July 2020. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

Our Take On Low Keng Huat (Singapore)'s Profit Performance

As we discussed above, we think the significant positive unusual item makes Low Keng Huat (Singapore)'searnings a poor guide to its underlying profitability. As a result, we think it may well be the case that Low Keng Huat (Singapore)'s underlying earnings power is lower than its statutory profit. But the good news is that its EPS growth over the last three years has been very impressive. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. Our analysis shows 4 warning signs for Low Keng Huat (Singapore) (2 are significant!) and we strongly recommend you look at them before investing.

This note has only looked at a single factor that sheds light on the nature of Low Keng Huat (Singapore)'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 that insiders are buying to be useful.

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This article by Simply Wall St is general in nature. 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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