Robust Earnings May Not Tell The Whole Story For Chasen Holdings (SGX:5NV)

Despite posting some strong earnings, the market for Chasen Holdings Limited's (SGX:5NV) stock hasn't moved much. We did some digging, and we found some concerning factors in the details.

View our latest analysis for Chasen Holdings

How Do Unusual Items Influence Profit?

To properly understand Chasen Holdings' profit results, we need to consider the S$3.2m 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. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's as you'd expect, given these boosts are described as 'unusual'. Chasen Holdings had a rather significant contribution from unusual items relative to its profit to March 2021. 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 Chasen Holdings.

Our Take On Chasen Holdings' Profit Performance

As previously mentioned, Chasen Holdings' large boost from unusual items won't be there indefinitely, so its statutory earnings are probably a poor guide to its underlying profitability. For this reason, we think that Chasen Holdings' statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. On the bright side, the company showed enough improvement to book a profit this year, after losing money last year. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. When we did our research, we found 3 warning signs for Chasen Holdings (1 is significant!) that we believe deserve your full attention.

This note has only looked at a single factor that sheds light on the nature of Chasen Holdings' 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. 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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