Is There More To The Story Than Pacific Hospital Supply's (GTSM:4126) Earnings Growth?

Many investors consider it preferable to invest in profitable companies over unprofitable ones, because profitability suggests a business is sustainable. However, sometimes companies receive a one-off boost (or reduction) to their profit, and it's not always clear whether statutory profits are a good guide, going forward. This article will consider whether Pacific Hospital Supply's (GTSM:4126) statutory profits are a good guide to its underlying earnings.

It's good to see that over the last twelve months Pacific Hospital Supply made a profit of NT$472.8m on revenue of NT$2.12b. In the chart below, you can see that its profit and revenue have both grown over the last three years.

Check out our latest analysis for Pacific Hospital Supply

Not all profits are equal, and we can learn more about the nature of a company's past profitability by diving deeper into the financial statements. This article will focus on the impact unusual items have had on Pacific Hospital Supply's statutory earnings. That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Pacific Hospital Supply's profit received a boost of NT$188m in unusual items, over the last year. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. 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'. Pacific Hospital Supply had a rather significant contribution from unusual items relative to its profit to September 2020. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

Our Take On Pacific Hospital Supply's Profit Performance

As we discussed above, we think the significant positive unusual item makes Pacific Hospital Supply'searnings a poor guide to its underlying profitability. As a result, we think it may well be the case that Pacific Hospital Supply's underlying earnings power is lower than its statutory profit. But on the bright side, its earnings per share have grown at an extremely impressive rate over the last three years. 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 while earnings quality is important, it's equally important to consider the risks facing Pacific Hospital Supply at this point in time. To that end, you should learn about the 3 warning signs we've spotted with Pacific Hospital Supply (including 1 which is concerning).

This note has only looked at a single factor that sheds light on the nature of Pacific Hospital Supply's 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. 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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This article by Simply Wall St is general in nature. 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.
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