We Think Perennial International's (HKG:725) Robust Earnings Are Conservative

When companies post strong earnings, the stock generally performs well, just like Perennial International Limited's (HKG:725) stock has recently. We did some digging and found some further encouraging factors that investors will like.

See our latest analysis for Perennial International

The Impact Of Unusual Items On Profit

For anyone who wants to understand Perennial International's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by HK$3.0m due to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect Perennial International to produce a higher profit next year, all else being equal.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Perennial International.

Our Take On Perennial International's Profit Performance

Because unusual items detracted from Perennial International's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Based on this observation, we consider it likely that Perennial International's statutory profit actually understates its earnings potential! And one can definitely find a positive in the fact that it made a profit this year, despite losing money 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 Perennial International, you'd also look into what risks it is currently facing. Every company has risks, and we've spotted 2 warning signs for Perennial International (of which 1 makes us a bit uncomfortable!) you should know about.

Today we've zoomed in on a single data point to better understand the nature of Perennial International's 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. 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.