We Think Cosmopolitan International Holdings' (HKG:120) Profit Is Only A Baseline For What They Can Achieve

Cosmopolitan International Holdings Limited's (HKG:120) strong earnings report was rewarded with a positive stock price move. Our analysis found some more factors that we think are good for shareholders.

View our latest analysis for Cosmopolitan International Holdings

How Do Unusual Items Influence Profit?

To properly understand Cosmopolitan International Holdings' profit results, we need to consider the HK$286m expense attributed to unusual items. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect Cosmopolitan International Holdings to produce a higher profit next year, all else being equal.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Cosmopolitan International Holdings.

Our Take On Cosmopolitan International Holdings' Profit Performance

Unusual items (expenses) detracted from Cosmopolitan International Holdings' earnings over the last year, but we might see an improvement next year. Because of this, we think Cosmopolitan International Holdings' earnings potential is at least as good as it seems, and maybe even better! And it's also positive that the company showed enough improvement to book a profit this year, after losing money last year. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. So while earnings quality is important, it's equally important to consider the risks facing Cosmopolitan International Holdings at this point in time. Case in point: We've spotted 2 warning signs for Cosmopolitan International Holdings you should be mindful of and 1 of them is a bit concerning.

This note has only looked at a single factor that sheds light on the nature of Cosmopolitan International Holdings' 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. 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.

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.