Some Investors May Be Willing To Look Past Kaimei Electronic's (TWSE:2375) Soft Earnings

The market for Kaimei Electronic Corp.'s (TWSE:2375) shares didn't move much after it posted weak earnings recently. We think that the softer headline numbers might be getting counterbalanced by some positive underlying factors.

View our latest analysis for Kaimei Electronic

How Do Unusual Items Influence Profit?

For anyone who wants to understand Kaimei Electronic's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by NT$66m due to unusual items. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect Kaimei Electronic to produce a higher profit next year, all else being equal.

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

Our Take On Kaimei Electronic's Profit Performance

Unusual items (expenses) detracted from Kaimei Electronic's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Kaimei Electronic's statutory profit actually understates its earnings potential! Unfortunately, though, its earnings per share actually fell back over the last year. 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. When we did our research, we found 2 warning signs for Kaimei Electronic (1 is concerning!) that we believe deserve your full attention.

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