We Think That There Are Issues Underlying Hongkong and Shanghai Hotels' (HKG:45) Earnings

The Hongkong and Shanghai Hotels, Limited (HKG:45) announced strong profits, but the stock was stagnant. Our analysis suggests that this might be because shareholders have noticed some concerning underlying factors.

Check out our latest analysis for Hongkong and Shanghai Hotels

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Hongkong and Shanghai Hotels' profit received a boost of HK$186m in unusual items, over the last year. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And, after all, that's exactly what the accounting terminology implies. We can see that Hongkong and Shanghai Hotels' positive unusual items were quite significant relative to its profit in the year to December 2023. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Hongkong and Shanghai Hotels.

Our Take On Hongkong and Shanghai Hotels' Profit Performance

As we discussed above, we think the significant positive unusual item makes Hongkong and Shanghai Hotels' earnings a poor guide to its underlying profitability. As a result, we think it may well be the case that Hongkong and Shanghai Hotels' underlying earnings power is lower than its statutory profit. The good news is that it earned a profit in the last twelve months, despite its previous loss. 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 Hongkong and Shanghai Hotels, you'd also look into what risks it is currently facing. Every company has risks, and we've spotted 3 warning signs for Hongkong and Shanghai Hotels (of which 2 make us uncomfortable!) you should know about.

Today we've zoomed in on a single data point to better understand the nature of Hongkong and Shanghai Hotels' profit. But there are plenty of other ways to inform your opinion of a company. 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 that insiders are buying.

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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.