Robust Earnings May Not Tell The Whole Story For Shun Wo Group Holdings (HKG:1591)

Unsurprisingly, Shun Wo Group Holdings Limited's (HKG:1591) stock price was strong on the back of its healthy earnings report. However, our analysis suggests that shareholders may be missing some factors that indicate the earnings result was not as good as it looked.

Our analysis indicates that 1591 is potentially undervalued!

The Impact Of Unusual Items On Profit

For anyone who wants to understand Shun Wo Group Holdings' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from HK$2.1m worth of unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And, after all, that's exactly what the accounting terminology implies. We can see that Shun Wo Group Holdings' positive unusual items were quite significant relative to its profit in the year to September 2022. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Shun Wo Group Holdings.

Our Take On Shun Wo Group Holdings' Profit Performance

As we discussed above, we think the significant positive unusual item makes Shun Wo Group Holdings' earnings a poor guide to its underlying profitability. For this reason, we think that Shun Wo Group Holdings' statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. But the happy news is that, while acknowledging we have to look beyond the statutory numbers, those numbers are still improving, with EPS growing at a very high rate over the last year. 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. If you want to do dive deeper into Shun Wo Group Holdings, you'd also look into what risks it is currently facing. Every company has risks, and we've spotted 3 warning signs for Shun Wo Group Holdings (of which 1 can't be ignored!) you should know about.

Today we've zoomed in on a single data point to better understand the nature of Shun Wo Group Holdings' 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. While it might take a little research on your behalf, you may find this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying to be useful.

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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.