Stock Analysis

Should You Rely On Winson Holdings Hong Kong's (HKG:6812) Earnings Growth?

SEHK:6812
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Broadly speaking, profitable businesses are less risky than unprofitable ones. However, sometimes companies receive a one-off boost (or reduction) to their profit, and it's not always clear whether statutory profits are a good guide, going forward. Today we'll focus on whether this year's statutory profits are a good guide to understanding Winson Holdings Hong Kong (HKG:6812).

We like the fact that Winson Holdings Hong Kong made a profit of HK$50.6m on its revenue of HK$550.6m, in the last year. One positive is that it has grown both its profit and its revenue, over the last few years.

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earnings-and-revenue-history
SEHK:6812 Earnings and Revenue History November 20th 2020

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 Winson Holdings Hong Kong's statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Winson Holdings Hong Kong.

How Do Unusual Items Influence Profit?

To properly understand Winson Holdings Hong Kong's profit results, we need to consider the HK$33m 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 analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's as you'd expect, given these boosts are described as 'unusual'. Winson Holdings Hong Kong had a rather significant contribution from unusual items relative to its profit to September 2020. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

Our Take On Winson Holdings Hong Kong's Profit Performance

As we discussed above, we think the significant positive unusual item makes Winson Holdings Hong Kong'searnings a poor guide to its underlying profitability. For this reason, we think that Winson Holdings Hong Kong's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. But on the bright side, its earnings per share have grown at an extremely impressive rate 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Every company has risks, and we've spotted 2 warning signs for Winson Holdings Hong Kong you should know about.

This note has only looked at a single factor that sheds light on the nature of Winson Holdings Hong Kong's 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. 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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