We Think That There Are Some Issues For Lian Hwa Foods (TWSE:1231) Beyond Its Promising Earnings

The recent earnings posted by Lian Hwa Foods Corporation (TWSE:1231) 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.

View our latest analysis for Lian Hwa Foods

The Impact Of Unusual Items On Profit

To properly understand Lian Hwa Foods' profit results, we need to consider the NT$195m gain attributed to unusual items. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. Which is hardly surprising, given the name. If Lian Hwa Foods doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Lian Hwa Foods.

Our Take On Lian Hwa Foods' Profit Performance

Arguably, Lian Hwa Foods' statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Lian Hwa Foods' statutory profits are better than its underlying earnings power. Nonetheless, it's still worth noting that its earnings per share have grown at 41% over the last three years. 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 Lian Hwa Foods at this point in time. At Simply Wall St, we found 1 warning sign for Lian Hwa Foods and we think they deserve your attention.

Today we've zoomed in on a single data point to better understand the nature of Lian Hwa Foods' 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.