Weak Statutory Earnings May Not Tell The Whole Story For Xxentria Technology Materials (GTSM:8942)

A lackluster earnings announcement from Xxentria Technology Materials Co., Ltd. (GTSM:8942) last week didn't sink the stock price. Our analysis suggests that along with soft profit numbers, investors should be aware of some other underlying weaknesses in the numbers.

See our latest analysis for Xxentria Technology Materials

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Xxentria Technology Materials' profit received a boost of NT$161m 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 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'. Xxentria Technology Materials had a rather significant contribution from unusual items relative to its profit to December 2020. 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 Xxentria Technology Materials.

Our Take On Xxentria Technology Materials' Profit Performance

As we discussed above, we think the significant positive unusual item makes Xxentria Technology Materials' earnings a poor guide to its underlying profitability. As a result, we think it may well be the case that Xxentria Technology Materials' 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. 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 Xxentria Technology Materials at this point in time. Case in point: We've spotted 1 warning sign for Xxentria Technology Materials you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Xxentria Technology Materials' 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.

If you decide to trade Xxentria Technology Materials, use the lowest-cost* platform that is rated #1 Overall by Barron’s, Interactive Brokers. Trade stocks, options, futures, forex, bonds and funds on 135 markets, all from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.