Despite posting some strong earnings, the market for Transmit Entertainment Limited's (HKG:1326) stock hasn't moved much. Our analysis suggests that shareholders have noticed something concerning in the numbers.
The Impact Of Unusual Items On Profit
For anyone who wants to understand Transmit Entertainment's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from HK$125m 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'. Transmit Entertainment had a rather significant contribution from unusual items relative to its profit to December 2021. 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 Transmit Entertainment.
Our Take On Transmit Entertainment's Profit Performance
As we discussed above, we think the significant positive unusual item makes Transmit Entertainment's earnings a poor guide to its underlying profitability. For this reason, we think that Transmit Entertainment'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. 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. For example - Transmit Entertainment has 2 warning signs we think you should be aware of.
Today we've zoomed in on a single data point to better understand the nature of Transmit Entertainment'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.
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.