Thelloy Development Group's (HKG:1546) Shareholders Have More To Worry About Than Only Soft Earnings

The subdued market reaction suggests that Thelloy Development Group Limited's (HKG:1546) recent earnings didn't contain any surprises. Our analysis suggests that along with soft profit numbers, investors should be aware of some other underlying weaknesses in the numbers.

View our latest analysis for Thelloy Development Group

How Do Unusual Items Influence Profit?

To properly understand Thelloy Development Group's profit results, we need to consider the HK$431k gain attributed to unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. 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. Which is hardly surprising, given the name. 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 Thelloy Development Group.

Our Take On Thelloy Development Group's Profit Performance

Arguably, Thelloy Development Group's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Thelloy Development Group's true underlying earnings power is actually less than its statutory profit. Sadly, its EPS was down over the last twelve months. 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. So while earnings quality is important, it's equally important to consider the risks facing Thelloy Development Group at this point in time. Case in point: We've spotted 4 warning signs for Thelloy Development Group you should be mindful of and 1 of them is significant.

This note has only looked at a single factor that sheds light on the nature of Thelloy Development Group's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com