Roiserv Lifestyle Services' (HKG:2146) Soft Earnings Are Actually Better Than They Appear

Soft earnings didn't appear to concern Roiserv Lifestyle Services Co., Ltd.'s (HKG:2146) shareholders over the last week. Our analysis suggests that while the profits are soft, the foundations of the business are strong.

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How Do Unusual Items Influence Profit?

To properly understand Roiserv Lifestyle Services' profit results, we need to consider the CN¥17m expense attributed to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. 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. If Roiserv Lifestyle Services doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Roiserv Lifestyle Services.

Our Take On Roiserv Lifestyle Services' Profit Performance

Unusual items (expenses) detracted from Roiserv Lifestyle Services' earnings over the last year, but we might see an improvement next year. Because of this, we think Roiserv Lifestyle Services' earnings potential is at least as good as it seems, and maybe even better! On the other hand, its EPS actually shrunk in the last twelve months. 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. When we did our research, we found 2 warning signs for Roiserv Lifestyle Services (1 makes us a bit uncomfortable!) that we believe deserve your full attention.

This note has only looked at a single factor that sheds light on the nature of Roiserv Lifestyle Services' 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 with significant insider holdings 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.