We Think That There Are Some Issues For Hwa Fong Rubber Industrial (TWSE:2109) Beyond Its Promising Earnings

The recent earnings posted by Hwa Fong Rubber Industrial Co., Ltd. (TWSE:2109) were solid, but the stock didn't move as much as we expected. However the statutory profit number doesn't tell the whole story, and we have found some factors which might be of concern to shareholders.

See our latest analysis for Hwa Fong Rubber Industrial

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Hwa Fong Rubber Industrial's profit received a boost of NT$368m in unusual items, over the last year. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that's exactly what the accounting terminology implies. We can see that Hwa Fong Rubber Industrial's positive unusual items were quite significant relative to its profit in the year to December 2023. 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 Hwa Fong Rubber Industrial.

Our Take On Hwa Fong Rubber Industrial's Profit Performance

As we discussed above, we think the significant positive unusual item makes Hwa Fong Rubber Industrial's earnings a poor guide to its underlying profitability. For this reason, we think that Hwa Fong Rubber Industrial's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. But at least holders can take some solace from the 14% per annum growth in EPS for the last three. 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. If you'd like to know more about Hwa Fong Rubber Industrial as a business, it's important to be aware of any risks it's facing. While conducting our analysis, we found that Hwa Fong Rubber Industrial has 2 warning signs and it would be unwise to ignore these.

Today we've zoomed in on a single data point to better understand the nature of Hwa Fong Rubber Industrial'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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

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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.