The recent earnings posted by HKScan Oyj (HEL:HKSAV) were solid, but the stock didn't move as much as we expected. We think this is due to investors looking beyond the statutory profits and being concerned with what they see.
The Impact Of Unusual Items On Profit
For anyone who wants to understand HKScan Oyj's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from €4.5m 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 crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. 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 HKScan Oyj.
Our Take On HKScan Oyj's Profit Performance
We'd posit that HKScan Oyj's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Therefore, it seems possible to us that HKScan Oyj's true underlying earnings power is actually less than its statutory profit. The good news is that it earned a profit in the last twelve months, despite its previous loss. 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. If you want to do dive deeper into HKScan Oyj, you'd also look into what risks it is currently facing. For example, HKScan Oyj has 2 warning signs (and 1 which doesn't sit too well with us) we think you should know about.
This note has only looked at a single factor that sheds light on the nature of HKScan Oyj's 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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