We Think Meiloon Industrial's (TWSE:2477) Robust Earnings Are Conservative

Meiloon Industrial Co., Ltd. (TWSE:2477) just reported healthy earnings but the stock price didn't move much. We think that investors have missed some encouraging factors underlying the profit figures.

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How Do Unusual Items Influence Profit?

Importantly, our data indicates that Meiloon Industrial's profit was reduced by NT$48m, due to unusual items, over the last year. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect Meiloon Industrial to produce a higher profit next year, all else being equal.

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

Our Take On Meiloon Industrial's Profit Performance

Unusual items (expenses) detracted from Meiloon Industrial's earnings over the last year, but we might see an improvement next year. Because of this, we think Meiloon Industrial's earnings potential is at least as good as it seems, and maybe even better! Furthermore, it has done a great job growing EPS over the 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 Meiloon Industrial at this point in time. For instance, we've identified 2 warning signs for Meiloon Industrial (1 is concerning) you should be familiar with.

Today we've zoomed in on a single data point to better understand the nature of Meiloon 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. 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 with significant insider holdings 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.