Should You Rely On Chen Hsong Holdings's (HKG:57) Earnings Growth?

As a general rule, we think profitable companies are less risky than companies that lose money. That said, the current statutory profit is not always a good guide to a company's underlying profitability. This article will consider whether Chen Hsong Holdings' (HKG:57) statutory profits are a good guide to its underlying earnings.

While Chen Hsong Holdings was able to generate revenue of HK$1.76b in the last twelve months, we think its profit result of HK$132.7m was more important. In the chart below, you can see that its profit and revenue have both grown over the last three years.

View our latest analysis for Chen Hsong Holdings

Of course, when it comes to statutory profit, the devil is often in the detail, and we can get a better sense for a company by diving deeper into the financial statements. This article will focus on the impact unusual items have had on Chen Hsong Holdings' statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Chen Hsong Holdings.

The Impact Of Unusual Items On Profit

For anyone who wants to understand Chen Hsong Holdings' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from HK$106m worth of unusual items. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. 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. We can see that Chen Hsong Holdings' positive unusual items were quite significant relative to its profit in the year to September 2020. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

Our Take On Chen Hsong Holdings' Profit Performance

As previously mentioned, Chen Hsong Holdings' large boost from unusual items won't be there indefinitely, so its statutory earnings are probably a poor guide to its underlying profitability. For this reason, we think that Chen Hsong Holdings' statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. Nonetheless, it's still worth noting that its earnings per share have grown at 38% over the last three years. 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. If you want to do dive deeper into Chen Hsong Holdings, you'd also look into what risks it is currently facing. You'd be interested to know, that we found 3 warning signs for Chen Hsong Holdings and you'll want to know about these.

Today we've zoomed in on a single data point to better understand the nature of Chen Hsong Holdings' profit. But there are plenty of other ways to inform your opinion of a company. 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. 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.
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