Sunplus Technology's (TPE:2401) Solid Profits Have Weak Fundamentals

Investors were disappointed with Sunplus Technology Company Limited's (TPE:2401) earnings, despite the strong profit numbers. We think that the market might be paying attention to some underlying factors are concerning.

View our latest analysis for Sunplus Technology

The Impact Of Unusual Items On Profit

To properly understand Sunplus Technology's profit results, we need to consider the NT$154m 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. Sunplus Technology had a rather significant contribution from unusual items relative to its profit to December 2020. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

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

Our Take On Sunplus Technology's Profit Performance

As we discussed above, we think the significant positive unusual item makes Sunplus Technology's earnings a poor guide to its underlying profitability. As a result, we think it may well be the case that Sunplus Technology's underlying earnings power is lower than its statutory profit. The silver lining is that its EPS growth over the last year has been really wonderful, even if it's not a perfect measure. 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Every company has risks, and we've spotted 3 warning signs for Sunplus Technology (of which 1 is a bit concerning!) you should know about.

This note has only looked at a single factor that sheds light on the nature of Sunplus Technology's 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. 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. 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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