Liburnia Riviera Hoteli d.d's (ZGSE:LRH) Earnings Are Of Questionable Quality

Despite announcing strong earnings, Liburnia Riviera Hoteli d.d.'s (ZGSE:LRH) stock was sluggish. Our analysis uncovered some concerning factors that we believe the market might be paying attention to.

View our latest analysis for Liburnia Riviera Hoteli d.d

An Unusual Tax Situation

Liburnia Riviera Hoteli d.d reported a tax benefit of €778k, which is well worth noting. This is of course a bit out of the ordinary, given it is more common for companies to be paying tax than receiving tax benefits! Of course, prima facie it's great to receive a tax benefit. However, the devil in the detail is that these kind of benefits only impact in the year they are booked, and are often one-off in nature. In the likely event the tax benefit is not repeated, we'd expect to see its statutory profit levels drop, at least in the absence of strong growth.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Liburnia Riviera Hoteli d.d.

Our Take On Liburnia Riviera Hoteli d.d's Profit Performance

Liburnia Riviera Hoteli d.d reported that it received a tax benefit, rather than paid tax, in its last report. Given that sort of benefit is not recurring, a focus on the statutory profit might make the company seem better than it really is. Therefore, it seems possible to us that Liburnia Riviera Hoteli d.d's true underlying earnings power is actually less than its statutory profit. The silver lining is that its EPS growth over the last year has been really wonderful, even if it's not a perfect measure. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. If you want to do dive deeper into Liburnia Riviera Hoteli d.d, you'd also look into what risks it is currently facing. In terms of investment risks, we've identified 1 warning sign with Liburnia Riviera Hoteli d.d, and understanding it should be part of your investment process.

Today we've zoomed in on a single data point to better understand the nature of Liburnia Riviera Hoteli d.d'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 with high insider ownership.

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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.