Hangzhou Hota M&E Holdings' (SZSE:001225) Anemic Earnings Might Be Worse Than You Think

A lackluster earnings announcement from Hangzhou Hota M&E Holdings Co., Ltd. (SZSE:001225) last week didn't sink the stock price. We think that investors are worried about some weaknesses underlying the earnings.

Check out our latest analysis for Hangzhou Hota M&E Holdings

The Impact Of Unusual Items On Profit

For anyone who wants to understand Hangzhou Hota M&E Holdings' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥15m worth of 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 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 Hangzhou Hota M&E Holdings.

Our Take On Hangzhou Hota M&E Holdings' Profit Performance

Arguably, Hangzhou Hota M&E Holdings' statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Hangzhou Hota M&E Holdings' statutory profits are better than its underlying earnings power. Sadly, its EPS was down over the last twelve months. 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. So while earnings quality is important, it's equally important to consider the risks facing Hangzhou Hota M&E Holdings at this point in time. Case in point: We've spotted 3 warning signs for Hangzhou Hota M&E Holdings you should be mindful of and 1 of them can't be ignored.

This note has only looked at a single factor that sheds light on the nature of Hangzhou Hota M&E 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. 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.