AV Concept Holdings' (HKG:595) Soft Earnings Are Actually Better Than They Appear

Shareholders appeared unconcerned with AV Concept Holdings Limited's (HKG:595) lackluster earnings report last week. We did some digging, and we believe the earnings are stronger than they seem.

Check out our latest analysis for AV Concept Holdings

The Impact Of Unusual Items On Profit

To properly understand AV Concept Holdings' profit results, we need to consider the HK$6.1m 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 that's hardly a surprise given these line items are considered unusual. If AV Concept Holdings 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 AV Concept Holdings.

Our Take On AV Concept Holdings' Profit Performance

Unusual items (expenses) detracted from AV Concept Holdings' earnings over the last year, but we might see an improvement next year. Because of this, we think AV Concept Holdings' earnings potential is at least as good as it seems, and maybe even better! And on top of that, its earnings per share have grown at an extremely impressive rate over the last three years. 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. For example - AV Concept Holdings has 2 warning signs we think you should be aware of.

This note has only looked at a single factor that sheds light on the nature of AV Concept Holdings' profit. But there are plenty of other ways to inform your opinion of a company. Some people consider a high return on equity to be a good sign of a quality business. 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.

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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.