China Travel International Investment Hong Kong (HKG:308) Strong Profits May Be Masking Some Underlying Issues

The market for China Travel International Investment Hong Kong Limited's (HKG:308) stock was strong after it released a healthy earnings report last week. However, we think that shareholders should be cautious as we found some worrying factors underlying the profit.

View our latest analysis for China Travel International Investment Hong Kong

The Impact Of Unusual Items On Profit

For anyone who wants to understand China Travel International Investment Hong Kong's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from HK$518m worth of 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 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. We can see that China Travel International Investment Hong Kong's positive unusual items were quite significant relative to its profit in the year to June 2021. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

Our Take On China Travel International Investment Hong Kong's Profit Performance

As we discussed above, we think the significant positive unusual item makes China Travel International Investment Hong Kong's earnings a poor guide to its underlying profitability. For this reason, we think that China Travel International Investment 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. On the bright side, the company showed enough improvement to book a profit this year, after losing money last year. 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'd like to know more about China Travel International Investment Hong Kong as a business, it's important to be aware of any risks it's facing. At Simply Wall St, we found 1 warning sign for China Travel International Investment Hong Kong and we think they deserve your attention.

Today we've zoomed in on a single data point to better understand the nature of China Travel International Investment Hong Kong's 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. 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.
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