Far East Orchard Limited (SGX:O10) failed to move the stock market despite its solid earnings report. Our analysis suggests that this may be because shareholders noticed some concerning underlying factors.

Check out our latest analysis for Far East Orchard

The impact of unusual items on profit

Importantly, our data suggests that Far East Orchard’s profit was boosted by S$59m by unusual items last year. We can’t deny that higher profits generally make us optimistic, but we would have preferred to see the profit sustained. We’ve checked the numbers of most listed companies globally and it’s very common for unusual items to be one-off in nature. Which is hardly surprising given the name. Far East Orchard had a fairly significant contribution from unusual items relative to its profit through June 2024. Therefore, we can expect the unusual items to make its statutory profit significantly higher than it would otherwise be.

Note: We always recommend investors check balance sheet strength. Click here to access our balance sheet analysis of Far East Orchard.

Our assessment of Far East Orchard’s earnings performance

As mentioned, Far East Orchard’s big boost from unusual items won’t last indefinitely, so statutory profits are unlikely to be a good indicator of underlying profitability. For this reason, we believe Far East Orchard’s statutory profits may not be a good indicator of underlying earnings power and could leave investors with an overly positive impression of the company. The good news, however, is that EPS growth over the past three years has been very impressive. The goal of this article was to assess how well we can rely on statutory profits to reflect the company’s potential, but there’s a lot more to consider. With that in mind, we wouldn’t consider investing in a stock unless we had a clear understanding of the risks. In our analysis, we found that Far East Orchard 2 warning signs and it would be unwise to ignore them.

This note has only examined a single factor that can shed light on the nature of Far East Orchard’s earnings. But there is always more to discover if you are able to focus on the small details. For example, many people consider a high return on equity to be an indication of a favorable business situation, while others like to “follow the money” and look for stocks that insiders are buying. Although this may require a little research, you may find that this free Collection of companies with high return on equity or this list of stocks with significant insider holdings may prove useful.

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This Simply Wall St article is of a general nature. We comment solely on the basis of historical data and analyst forecasts, using an unbiased methodology. Our articles do not constitute financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative materials. Simply Wall St does not hold any of the stocks mentioned.