Statistically speaking, it is less risky to invest in profitable companies than in unprofitable ones. Having said that, sometimes statutory profit levels are not a good guide to ongoing profitability, because some short term one-off factor has impacted profit levels. This article will consider whether Roxy-Pacific Holdings‘s (SGX:E8Z) statutory profits are a good guide to its underlying earnings.
It’s good to see that over the last twelve months Roxy-Pacific Holdings made a profit of S$14.8m on revenue of S$213.8m. At the risk of seeming quaint, we do like to at least examine profit, even when a stock is improving revenue and considered a ‘growth stock’. In the last few years both its revenue and its profit have fallen, as you can see in the chart below.
Not all profits are equal, and we can learn more about the nature of a company’s past profitability by diving deeper into the financial statements. This article will discuss how unusual items have impacted Roxy-Pacific Holdings’s most recent profit results. That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.
How Do Unusual Items Influence Profit?
While it’s always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. 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. If Roxy-Pacific Holdings doesn’t see that contribution repeat, then all else being equal we’d expect its profit to drop over the current year.
Our Take On Roxy-Pacific Holdings’s Profit Performance
We’d posit that Roxy-Pacific Holdings’s statutory earnings aren’t a clean read on ongoing productivity, due to the large unusual item. Therefore, it seems possible to us that Roxy-Pacific Holdings’s true underlying earnings power is actually less than its statutory profit. Sadly, its EPS was down over the last twelve months. 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. Obviously, we love to consider the historical data to inform our opinion of a company. But it can be really valuable to consider what other analysts are forecasting. At Simply Wall St, we have analyst estimates which you can view by clicking here.
Today we’ve zoomed in on a single data point to better understand the nature of Roxy-Pacific Holdings’s profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Simply Wall St has no position in the stocks mentioned.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.