Weak Statutory Earnings May Not Tell The Whole Story For Hong Kong Ferry (Holdings) (HKG:50)

A lackluster earnings announcement from Hong Kong Ferry (Holdings) Company Limited (HKG:50) last week didn't sink the stock price. We think that investors are worried about some weaknesses underlying the earnings.

Our free stock report includes 1 warning sign investors should be aware of before investing in Hong Kong Ferry (Holdings). Read for free now.

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Hong Kong Ferry (Holdings)'s profit received a boost of HK$12m 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. Which is hardly surprising, given the name. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Hong Kong Ferry (Holdings).

Our Take On Hong Kong Ferry (Holdings)'s Profit Performance

Arguably, Hong Kong Ferry (Holdings)'s statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Hong Kong Ferry (Holdings)'s true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 39% per annum growth in EPS for the last three. 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'd like to know more about Hong Kong Ferry (Holdings) as a business, it's important to be aware of any risks it's facing. You'd be interested to know, that we found 1 warning sign for Hong Kong Ferry (Holdings) and you'll want to know about this.

This note has only looked at a single factor that sheds light on the nature of Hong Kong Ferry (Holdings)'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 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.