Deswell Industries, Inc.'s (NASDAQ:DSWL) robust recent earnings didn't do much to move the stock. We believe that shareholders have noticed some concerning factors beyond the statutory profit numbers.

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Deswell Industries' profit received a boost of US$878k in unusual items, over the last year. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. 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).

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

Our Take On Deswell Industries' Profit Performance

Arguably, Deswell Industries' statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Deswell Industries' true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 67% EPS growth in the last year. 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. If you'd like to know more about Deswell Industries 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 Deswell Industries you should know about.

This note has only looked at a single factor that sheds light on the nature of Deswell Industries' 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 with high insider ownership.

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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.