Robust Earnings May Not Tell The Whole Story For Royal Orchid Hotels (NSE:ROHLTD)

Royal Orchid Hotels Limited (NSE:ROHLTD) just reported some strong earnings, and the market rewarded them with a positive share price move. However, we think that shareholders may be missing some concerning details in the numbers.

Check out our latest analysis for Royal Orchid Hotels

The Impact Of Unusual Items On Profit

To properly understand Royal Orchid Hotels' profit results, we need to consider the ₹255m gain attributed to unusual items. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And that's as you'd expect, given these boosts are described as 'unusual'. Royal Orchid Hotels had a rather significant contribution from unusual items relative to its profit to March 2022. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

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

Our Take On Royal Orchid Hotels' Profit Performance

As we discussed above, we think the significant positive unusual item makes Royal Orchid Hotels' earnings a poor guide to its underlying profitability. As a result, we think it may well be the case that Royal Orchid Hotels' underlying earnings power is lower than its statutory profit. On the bright side, the company showed enough improvement to book a profit this year, after losing money last year. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. While conducting our analysis, we found that Royal Orchid Hotels has 3 warning signs and it would be unwise to ignore them.

This note has only looked at a single factor that sheds light on the nature of Royal Orchid Hotels' 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 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.