Hong Kong Johnson Holdings' (HKG:1955) Shareholders Have More To Worry About Than Only Soft Earnings

Last week's earnings announcement from Hong Kong Johnson Holdings Co., Ltd. (HKG:1955) was disappointing to investors, with a sluggish profit figure. We did some analysis, and found that there are some reasons to be cautious about the headline numbers.

See our latest analysis for Hong Kong Johnson Holdings

How Do Unusual Items Influence Profit?

To properly understand Hong Kong Johnson Holdings' profit results, we need to consider the HK$2.6m gain attributed to 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. Which is hardly surprising, given the name. If Hong Kong Johnson Holdings doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Hong Kong Johnson Holdings.

Our Take On Hong Kong Johnson Holdings' Profit Performance

Arguably, Hong Kong Johnson Holdings' statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Hong Kong Johnson Holdings' true underlying earnings power is actually less than its statutory profit. Sadly, its EPS was down over the last twelve months. 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. For instance, we've identified 2 warning signs for Hong Kong Johnson Holdings (1 is significant) you should be familiar with.

Today we've zoomed in on a single data point to better understand the nature of Hong Kong Johnson Holdings' profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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 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