Investors Shouldn't Be Too Comfortable With International Hotel Investments' (MTSE:IHI) Earnings

International Hotel Investments p.l.c.'s (MTSE:IHI) stock was strong after they recently reported robust earnings. However, we think that shareholders may be missing some concerning details in the numbers.

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How Do Unusual Items Influence Profit?

To properly understand International Hotel Investments' profit results, we need to consider the €12m 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, after all, that's exactly what the accounting terminology implies. We can see that International Hotel Investments' positive unusual items were quite significant relative to its profit in the year to December 2024. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of International Hotel Investments.

Our Take On International Hotel Investments' Profit Performance

As we discussed above, we think the significant positive unusual item makes International Hotel Investments' earnings a poor guide to its underlying profitability. For this reason, we think that International Hotel Investments' statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. The good news is that it earned a profit in the last twelve months, despite its previous loss. 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 International Hotel Investments at this point in time. Be aware that International Hotel Investments is showing 2 warning signs in our investment analysis and 1 of those is a bit concerning...

This note has only looked at a single factor that sheds light on the nature of International Hotel Investments' profit. But there are plenty of other ways to inform your opinion of a company. 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. 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.