EIH Associated Hotels' (NSE:EIHAHOTELS) Solid Profits Have Weak Fundamentals

Despite posting some strong earnings, the market for EIH Associated Hotels Limited's (NSE:EIHAHOTELS) stock hasn't moved much. Our analysis suggests that shareholders have noticed something concerning in the numbers.

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How Do Unusual Items Influence Profit?

For anyone who wants to understand EIH Associated Hotels' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from ₹93m worth of unusual items. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. 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. And, after all, that's exactly what the accounting terminology implies. If EIH Associated Hotels doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of EIH Associated Hotels.

Our Take On EIH Associated Hotels' Profit Performance

We'd posit that EIH Associated Hotels' statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Therefore, it seems possible to us that EIH Associated Hotels' true underlying earnings power is actually less than its statutory profit. But the good news is that its EPS growth over the last three years has been very impressive. 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 EIH Associated Hotels, you'd also look into what risks it is currently facing. Case in point: We've spotted 1 warning sign for EIH Associated Hotels you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of EIH Associated Hotels' 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 with significant insider holdings to be useful.

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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.