Grand Brilliance Group Holdings (HKG:8372) Strong Profits May Be Masking Some Underlying Issues

The recent earnings posted by Grand Brilliance Group Holdings Limited (HKG:8372) were solid, but the stock didn't move as much as we expected. We think this is due to investors looking beyond the statutory profits and being concerned with what they see.

See our latest analysis for Grand Brilliance Group Holdings

How Do Unusual Items Influence Profit?

For anyone who wants to understand Grand Brilliance Group Holdings' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from HK$2.6m worth of 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'. We can see that Grand Brilliance Group Holdings' positive unusual items were quite significant relative to its profit in the year to March 2024. 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 Grand Brilliance Group Holdings.

Our Take On Grand Brilliance Group Holdings' Profit Performance

As we discussed above, we think the significant positive unusual item makes Grand Brilliance Group Holdings' earnings a poor guide to its underlying profitability. For this reason, we think that Grand Brilliance Group 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 its earnings per share increased slightly in the last year. 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. Case in point: We've spotted 3 warning signs for Grand Brilliance Group Holdings you should be mindful of and 1 of them is potentially serious.

Today we've zoomed in on a single data point to better understand the nature of Grand Brilliance Group Holdings' 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 with high insider ownership.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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