We Think Robust Hotels' (NSE:RHL) Profit Is Only A Baseline For What They Can Achieve

Robust Hotels Limited's (NSE:RHL) earnings announcement last week was disappointing for investors, despite the decent profit numbers. We did some digging and actually think they are being unnecessarily pessimistic.

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The Impact Of Unusual Items On Profit

Importantly, our data indicates that Robust Hotels' profit was reduced by ₹57m, due to unusual items, over the last year. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. 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 Robust Hotels to produce a higher profit next year, all else being equal.

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

Our Take On Robust Hotels' Profit Performance

Unusual items (expenses) detracted from Robust Hotels' earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Robust Hotels' statutory profit actually understates its earnings potential! Better yet, its EPS are growing strongly, which is nice to see. 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. So while earnings quality is important, it's equally important to consider the risks facing Robust Hotels at this point in time. For example - Robust Hotels has 1 warning sign we think you should be aware of.

This note has only looked at a single factor that sheds light on the nature of Robust Hotels' profit. But there are plenty of other ways to inform your opinion of a company. Some people consider a high return on equity to be a good sign of a quality business. 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.