Concerns Surrounding Frontier Services Group's (HKG:500) Performance

Frontier Services Group Limited's (HKG:500) robust recent earnings didn't do much to move the stock. We think this is due to investors looking beyond the statutory profits and being concerned with what they see.

See our latest analysis for Frontier Services Group

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Frontier Services Group's profit received a boost of HK$137m in unusual items, over the last year. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that's exactly what the accounting terminology implies. Frontier Services Group had a rather significant contribution from unusual items relative to its profit to June 2023. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Frontier Services Group.

Our Take On Frontier Services Group's Profit Performance

As we discussed above, we think the significant positive unusual item makes Frontier Services Group's earnings a poor guide to its underlying profitability. For this reason, we think that Frontier Services Group's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. On the bright side, the company showed enough improvement to book a profit this year, after losing money 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. If you want to do dive deeper into Frontier Services Group, you'd also look into what risks it is currently facing. Case in point: We've spotted 4 warning signs for Frontier Services Group you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Frontier Services 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. 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.