Robust Earnings May Not Tell The Whole Story For Radiance Holdings (Group) (HKG:9993)

Following the solid earnings report from Radiance Holdings (Group) Company Limited (HKG:9993), the market responded by bidding up the stock price. However, we think that shareholders should be cautious as we found some worrying factors underlying the profit.

See our latest analysis for Radiance Holdings (Group)

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Radiance Holdings (Group)'s profit received a boost of CN¥555m in unusual items, over the last year. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. And that's as you'd expect, given these boosts are described as 'unusual'. 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).

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

Our Take On Radiance Holdings (Group)'s Profit Performance

We'd posit that Radiance Holdings (Group)'s statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Therefore, it seems possible to us that Radiance Holdings (Group)'s true underlying earnings power is actually less than its statutory profit. The good news is that, its earnings per share increased by 21% in the 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. If you'd like to know more about Radiance Holdings (Group) as a business, it's important to be aware of any risks it's facing. In terms of investment risks, we've identified 1 warning sign with Radiance Holdings (Group), and understanding it should be part of your investment process.

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

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This article by Simply Wall St is general in nature. 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.
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