HK Electric Investments and HK Electric Investments' (HKG:2638) Solid Earnings Have Been Accounted For Conservatively

HK Electric Investments and HK Electric Investments Limited's (HKG:2638) solid earnings announcement recently didn't do much to the stock price. Our analysis suggests that shareholders might be missing some positive underlying factors in the earnings report.

Check out our latest analysis for HK Electric Investments and HK Electric Investments

The Impact Of Unusual Items On Profit

Importantly, our data indicates that HK Electric Investments and HK Electric Investments' profit was reduced by HK$497m, due to unusual items, over the last year. 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, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect HK Electric Investments and HK Electric Investments to produce a higher profit next year, all else being equal.

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 HK Electric Investments and HK Electric Investments' Profit Performance

Unusual items (expenses) detracted from HK Electric Investments and HK Electric Investments' earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that HK Electric Investments and HK Electric Investments' statutory profit actually understates its earnings potential! And the EPS is up 7.4% over the last twelve months. 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Case in point: We've spotted 2 warning signs for HK Electric Investments and HK Electric Investments you should be aware of.

This note has only looked at a single factor that sheds light on the nature of HK Electric Investments and HK Electric Investments' profit. But there are plenty of other ways to inform your opinion of a company. 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.

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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.