Should You Rely On Novacon Technology Group's (HKG:8635) Earnings Growth?

Broadly speaking, profitable businesses are less risky than unprofitable ones. That said, the current statutory profit is not always a good guide to a company's underlying profitability. Today we'll focus on whether this year's statutory profits are a good guide to understanding Novacon Technology Group (HKG:8635).

It's good to see that over the last twelve months Novacon Technology Group made a profit of HK$11.3m on revenue of HK$42.3m. As depicted below, while its revenue may have fallen over the last few years, its profit actually improved.

See our latest analysis for Novacon Technology Group

Of course, it is only sensible to look beyond the statutory profits and question how well those numbers represent the sustainable earnings power of the business. This article will discuss how unusual items have impacted Novacon Technology Group's most recent profit results. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Novacon Technology Group.

The Impact Of Unusual Items On Profit

To properly understand Novacon Technology Group's profit results, we need to consider the HK$1.1m gain attributed to unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. 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. Which is hardly surprising, given the name. If Novacon Technology Group doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Our Take On Novacon Technology Group's Profit Performance

Arguably, Novacon Technology Group's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Novacon Technology Group's statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 61% EPS growth in the last year. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. To that end, you should learn about the 3 warning signs we've spotted with Novacon Technology Group (including 2 which make us uncomfortable).

Today we've zoomed in on a single data point to better understand the nature of Novacon Technology Group's 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 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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