There May Be Underlying Issues With The Quality Of HLV's (NSE:HLVLTD) Earnings

Despite announcing strong earnings, HLV Limited's (NSE:HLVLTD) stock was sluggish. We did some digging and found some worrying underlying problems.

View our latest analysis for HLV

How Do Unusual Items Influence Profit?

To properly understand HLV's profit results, we need to consider the ₹23m gain attributed to 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 that's as you'd expect, given these boosts are described as 'unusual'. If HLV 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 HLV.

Our Take On HLV's Profit Performance

Arguably, HLV's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that HLV's true underlying earnings power is actually less than its statutory profit. The good news is that, its earnings per share increased by 38% in the 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'd like to know more about HLV as a business, it's important to be aware of any risks it's facing. For example, we've discovered 1 warning sign that you should run your eye over to get a better picture of HLV.

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