Despite posting some strong earnings, the market for New Toyo International Holdings Ltd's (SGX:N08) stock hasn't moved much. We did some digging, and we found some concerning factors in the details.
How Do Unusual Items Influence Profit?
To properly understand New Toyo International Holdings' profit results, we need to consider the S$2.3m 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 analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that's exactly what the accounting terminology implies. 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).
Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of New Toyo International Holdings.
Our Take On New Toyo International Holdings' Profit Performance
We'd posit that New Toyo International Holdings' statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Because of this, we think that it may be that New Toyo International Holdings' statutory profits are better than its underlying earnings power. Nonetheless, it's still worth noting that its earnings per share have grown at 69% over the last three years. 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. You'd be interested to know, that we found 2 warning signs for New Toyo International Holdings and you'll want to know about them.
This note has only looked at a single factor that sheds light on the nature of New Toyo International Holdings' 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. 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.