Le Saunda Holdings' (HKG:738) Solid Earnings May Rest On Weak Foundations

Le Saunda Holdings Limited's (HKG:738 ) stock didn't jump after it announced some healthy earnings. Our analysis showed that there are some concerning factors in the earnings that investors may be cautious of.

View our latest analysis for Le Saunda Holdings

The Impact Of Unusual Items On Profit

To properly understand Le Saunda Holdings' profit results, we need to consider the CN¥138m gain attributed to 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. Which is hardly surprising, given the name. We can see that Le Saunda Holdings' positive unusual items were quite significant relative to its profit in the year to February 2021. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

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

Our Take On Le Saunda Holdings' Profit Performance

As we discussed above, we think the significant positive unusual item makes Le Saunda Holdings' earnings a poor guide to its underlying profitability. For this reason, we think that Le Saunda Holdings' statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. The good news is that it earned a profit in the last twelve months, despite its previous loss. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. 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 4 warning signs for Le Saunda Holdings (of which 1 is potentially serious!) you should know about.

This note has only looked at a single factor that sheds light on the nature of Le Saunda 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. 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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