Advertisement
Is There More To The Story Than Syscom Computer Engineering's (TPE:2453) Earnings Growth?
Statistically speaking, it is less risky to invest in profitable companies than in unprofitable ones. Having said that, sometimes statutory profit levels are not a good guide to ongoing profitability, because some short term one-off factor has impacted profit levels. Today we'll focus on whether this year's statutory profits are a good guide to understanding Syscom Computer Engineering (TPE:2453).
It's good to see that over the last twelve months Syscom Computer Engineering made a profit of NT$140.3m on revenue of NT$5.87b. In the chart below, you can see that its profit and revenue have both grown over the last three years.
View our latest analysis for Syscom Computer Engineering
Importantly, statutory profits are not always the best tool for understanding a company's true earnings power, so it's well worth examining profits in a little more detail. Therefore, we think it's worth taking a closer look at Syscom Computer Engineering's cashflow, as well as examining the impact that unusual items have had on its reported profit. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Syscom Computer Engineering.
A Closer Look At Syscom Computer Engineering's Earnings
As finance nerds would already know, the accrual ratio from cashflow is a key measure for assessing how well a company's free cash flow (FCF) matches its profit. The accrual ratio subtracts the FCF from the profit for a given period, and divides the result by the average operating assets of the company over that time. This ratio tells us how much of a company's profit is not backed by free cashflow.
As a result, a negative accrual ratio is a positive for the company, and a positive accrual ratio is a negative. That is not intended to imply we should worry about a positive accrual ratio, but it's worth noting where the accrual ratio is rather high. To quote a 2014 paper by Lewellen and Resutek, "firms with higher accruals tend to be less profitable in the future".
Over the twelve months to September 2020, Syscom Computer Engineering recorded an accrual ratio of -0.32. Therefore, its statutory earnings were very significantly less than its free cashflow. To wit, it produced free cash flow of NT$769m during the period, dwarfing its reported profit of NT$140.3m. Given that Syscom Computer Engineering had negative free cash flow in the prior corresponding period, the trailing twelve month resul of NT$769m would seem to be a step in the right direction. However, that's not all there is to consider. We can see that unusual items have impacted its statutory profit, and therefore the accrual ratio.
How Do Unusual Items Influence Profit?
Surprisingly, given Syscom Computer Engineering's accrual ratio implied strong cash conversion, its paper profit was actually boosted by NT$22m in unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And that's as you'd expect, given these boosts are described as 'unusual'. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).
Our Take On Syscom Computer Engineering's Profit Performance
Syscom Computer Engineering's profits got a boost from unusual items, which indicates they might not be sustained and yet its accrual ratio still indicated solid cash conversion, which is promising. Considering all the aforementioned, we'd venture that Syscom Computer Engineering's profit result is a pretty good guide to its true profitability, albeit a bit on the conservative side. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. While conducting our analysis, we found that Syscom Computer Engineering has 2 warning signs and it would be unwise to ignore these.
Our examination of Syscom Computer Engineering has focussed on certain factors that can make its earnings look better than they are. 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.
When trading Syscom Computer Engineering or any other investment, use the platform considered by many to be the Professional's Gateway to the Worlds Market, Interactive Brokers. You get the lowest-cost* trading on stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted
New: Manage All Your Stock Portfolios in One Place
We've created the ultimate portfolio companion for stock investors, and it's free.
• Connect an unlimited number of Portfolios and see your total in one currency
• Be alerted to new Warning Signs or Risks via email or mobile
• Track the Fair Value of your stocks
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.
About TWSE:2453
Syscom Computer Engineering
Provides information technology services in Taiwan, China, the United States, and Southeast Asia.
Flawless balance sheet second-rate dividend payer.
Similar Companies
Market Insights
Advertisement
Weekly Picks
LO
Lou_Basenese on Optimi Health ·
The Only Psychedelic Company Already Selling MDMA and Psilocybin to Real Patients, Yet Priced Like It Doesn’t Exist
Fair Value:US$1157.5% undervalued
47 followersusers have followed this narrative
2 commentsusers have commented on this narrative
7 likesusers have liked this narrative
WE
WealthAP on Novo Nordisk ·
Novo Nordisk (NVO): Is the "Easy Growth" Story Over?
Fair Value:DKK 407.7721.4% undervalued
69 followersusers have followed this narrative
0 commentsusers have commented on this narrative
8 likesusers have liked this narrative
VA
ValueInvestingSubstack on Zoetis ·
Zoetis down -50% over the past year
Fair Value:US$92.9218.9% undervalued
23 followersusers have followed this narrative
0 commentsusers have commented on this narrative
9 likesusers have liked this narrative
CE
CentryResearch on Centrus Energy ·
Centrus Energy: The Next Nuclear Bottleneck Isn't Reactors. It's Fuel.
Fair Value:US$19013.7% undervalued
24 followersusers have followed this narrative
0 commentsusers have commented on this narrative
10 likesusers have liked this narrative
Recently Updated Narratives
WI
WisetoWealth on PayPal Holdings ·
The Underrated Transformation of a Digital Payments Giant
Fair Value:US$90.3137.8% undervalued
2 followersusers have followed this narrative
0 commentsusers have commented on this narrative
0 likesusers have liked this narrative
BL
Blagget on Terra Balcanica Resources ·
The C$4M Explorer Positioned to Become Europe's First Antimony Mine
Fair Value:CA$0.487.5% undervalued
2 followersusers have followed this narrative
0 commentsusers have commented on this narrative
0 likesusers have liked this narrative
DA
david_6nroa on Charter Communications ·
Charter is undervalued - Here's why.
Fair Value:US$87.0741.6% overvalued
1 followerusers have followed this narrative
0 commentsusers have commented on this narrative
0 likesusers have liked this narrative
Popular Narratives
CU
CubanEros on Microsoft ·
A wonderful business at reasonable price.
Fair Value:US$419.919.1% undervalued
81 followersusers have followed this narrative
0 commentsusers have commented on this narrative
6 likesusers have liked this narrative
OS
oscargarcia on NVIDIA ·
The company that went from selling GPUs to gamers to becoming the AI arms dealer of the 21st century.
Fair Value:US$28026.1% undervalued
186 followersusers have followed this narrative
9 commentsusers have commented on this narrative
15 likesusers have liked this narrative
BE
benjamin_lvieq on PayPal Holdings ·
PayPal: PayPal Doesn't Need to Grow – It Needs to Stop Falling – A Mispriced Cash Machine With a Cannibal Buyback
Fair Value:US$6513.6% undervalued
72 followersusers have followed this narrative
2 commentsusers have commented on this narrative
11 likesusers have liked this narrative
Trending Discussion
DE
derek_3wsdg on Teladoc Health ·
You’ve overlooked the activist investor factor. Travis Cocke’s Voss has announced 5% ownership through a 13G filing. They’ve added to that 5% since, and in doing so, have created a structural trap door for 27.42 Million Shares actively sold short. Chuck will announce lots of positives on July 29 but it’s what Voss announces shortly after that will rock the overextended Teledoc shorts. The Walmart partnership is the tip of the iceberg. The market is missing the sheer regulatory and enterprise friction of modern corporate healthcare. Teladoc isn't a "consumer app"; it is the primary digital infrastructure integrated directly into the legacy backends of Tier-1 insurance companies and fortune 500 employers, covering 105 million+ lives. Teladoc is acting as the digital top-of-funnel engine for the world's largest retailer. If Voss pushes the narrative that Teladoc is effectively the outsourced digital brain of Walmart's entire healthcare footprint, the fair value shifts from a basic health multiple to an enterprise distribution premium. Additionally , we are in a structural gold rush for high-quality, legally compliant, longitudinal medical data to train vertical healthcare AI models. Large technology hyperscalers and pharmaceutical giants cannot simply scrape the internet for this; they need structured clinical inputs. Teladoc sits on one of the largest de-identified virtual medical datasets on earth. From the activist playbook , we’ll see Voss demand the immediate creation of a Data & Diagnostics Licensing Division, transforming a legacy liability into an incredibly high-margin, pure-software data asset that requires zero human clinician hours to scale. Chuck is doing great work and deserves credi5 for the Teledoc turnaround but it will be Travis Cocke who will be responsible for a share price way beyond your $15 valuation.
1
|0
