Should You Rely On Cosmo Electronics's (TPE:2466) Earnings Growth?

It might be old fashioned, but we really like to invest in companies that make a profit, each and every year. That said, the current statutory profit is not always a good guide to a company's underlying profitability. This article will consider whether Cosmo Electronics' (TPE:2466) statutory profits are a good guide to its underlying earnings.

We like the fact that Cosmo Electronics made a profit of NT$47.2m on its revenue of NT$1.33b, in the last year. Even though its revenue is down over the last three years, its profit has actually increased, as you can see, below.

Check out our latest analysis for Cosmo Electronics

Of course, it is only sensible to look beyond the statutory profits and question how well those numbers represent the sustainable earnings power of the business. This article will discuss how unusual items have impacted Cosmo Electronics' most recent profit results. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Cosmo Electronics.

The Impact Of Unusual Items On Profit

To properly understand Cosmo Electronics' profit results, we need to consider the NT$336m 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. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. And that's as you'd expect, given these boosts are described as 'unusual'. We can see that Cosmo Electronics' positive unusual items were quite significant relative to its profit in the year to September 2020. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

Our Take On Cosmo Electronics' Profit Performance

As we discussed above, we think the significant positive unusual item makes Cosmo Electronics'earnings a poor guide to its underlying profitability. For this reason, we think that Cosmo Electronics' statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. But on the bright side, its earnings per share have grown at an extremely impressive rate over the last three years. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. If you'd like to know more about Cosmo Electronics as a business, it's important to be aware of any risks it's facing. Every company has risks, and we've spotted 2 warning signs for Cosmo Electronics (of which 1 is potentially serious!) you should know about.

Today we've zoomed in on a single data point to better understand the nature of Cosmo Electronics' 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. 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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