Should You Rely On Young Fast Optoelectronics's (TPE:3622) Earnings Growth?

Broadly speaking, profitable businesses are less risky than unprofitable ones. That said, the current statutory profit is not always a good guide to a company's underlying profitability. In this article, we'll look at how useful this year's statutory profit is, when analysing Young Fast Optoelectronics (TPE:3622).

It's good to see that over the last twelve months Young Fast Optoelectronics made a profit of NT$184.0m on revenue of NT$945.7m. The chart below shows how profit has actually increased over the last three years, even while revenue has declined.

View our latest analysis for Young Fast Optoelectronics

Of course, when it comes to statutory profit, the devil is often in the detail, and we can get a better sense for a company by diving deeper into the financial statements. This article will discuss how unusual items have impacted Young Fast Optoelectronics' most recent profit results. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Young Fast Optoelectronics.

How Do Unusual Items Influence Profit?

For anyone who wants to understand Young Fast Optoelectronics' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from NT$9.9m worth of unusual items. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. 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, after all, that's exactly what the accounting terminology implies. We can see that Young Fast Optoelectronics' 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 Young Fast Optoelectronics' Profit Performance

As we discussed above, we think the significant positive unusual item makes Young Fast Optoelectronics'earnings a poor guide to its underlying profitability. For this reason, we think that Young Fast Optoelectronics' statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. But the good news is that its EPS growth over the last three years has been very impressive. 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 if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. For example, we've discovered 1 warning sign that you should run your eye over to get a better picture of Young Fast Optoelectronics.

This note has only looked at a single factor that sheds light on the nature of Young Fast Optoelectronics' profit. But there are plenty of other ways to inform your opinion of a company. 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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