Impressive Earnings May Not Tell The Whole Story For Hovnanian Enterprises (NYSE:HOV)

Investors were disappointed with Hovnanian Enterprises, Inc.'s (NYSE:HOV) earnings, despite the strong profit numbers. We did some digging and found some worrying underlying problems.

View our latest analysis for Hovnanian Enterprises

How Do Unusual Items Influence Profit?

For anyone who wants to understand Hovnanian Enterprises' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from US$35m worth of 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'. If Hovnanian Enterprises doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

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.

Our Take On Hovnanian Enterprises' Profit Performance

We'd posit that Hovnanian Enterprises' statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Therefore, it seems possible to us that Hovnanian Enterprises' true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 20% EPS growth in the 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. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. To help with this, we've discovered 2 warning signs (1 is a bit concerning!) that you ought to be aware of before buying any shares in Hovnanian Enterprises.

This note has only looked at a single factor that sheds light on the nature of Hovnanian Enterprises' profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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.