MindChamps PreSchool's (SGX:CNE) Shareholders Have More To Worry About Than Only Soft Earnings

The subdued market reaction suggests that MindChamps PreSchool Limited's (SGX:CNE) recent earnings didn't contain any surprises. We think that investors are worried about some weaknesses underlying the earnings.

Check out our latest analysis for MindChamps PreSchool

The Impact Of Unusual Items On Profit

To properly understand MindChamps PreSchool's profit results, we need to consider the S$10m gain attributed to unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. 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'. MindChamps PreSchool had a rather significant contribution from unusual items relative to its profit to December 2020. 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 MindChamps PreSchool.

Our Take On MindChamps PreSchool's Profit Performance

As we discussed above, we think the significant positive unusual item makes MindChamps PreSchool's earnings a poor guide to its underlying profitability. For this reason, we think that MindChamps PreSchool's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. In further bad news, its earnings per share decreased 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 want to do dive deeper into MindChamps PreSchool, you'd also look into what risks it is currently facing. In terms of investment risks, we've identified 4 warning signs with MindChamps PreSchool, and understanding them should be part of your investment process.

This note has only looked at a single factor that sheds light on the nature of MindChamps PreSchool's 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. 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 that insiders are buying to be useful.

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