There May Be Reason For Hope In HomeChoice International's (JSE:HIL) Disappointing Earnings

Shareholders appeared unconcerned with HomeChoice International plc's (JSE:HIL) lackluster earnings report last week. Our analysis suggests that while the profits are soft, the foundations of the business are strong.

See our latest analysis for HomeChoice International

The Impact Of Unusual Items On Profit

For anyone who wants to understand HomeChoice International's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by R36m due to unusual items. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect HomeChoice International to produce a higher profit next year, all else being equal.

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

Our Take On HomeChoice International's Profit Performance

Unusual items (expenses) detracted from HomeChoice International's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that HomeChoice International's statutory profit actually understates its earnings potential! On the other hand, its EPS actually shrunk in the last twelve months. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. If you want to do dive deeper into HomeChoice International, you'd also look into what risks it is currently facing. When we did our research, we found 3 warning signs for HomeChoice International (1 shouldn't be ignored!) that we believe deserve your full attention.

This note has only looked at a single factor that sheds light on the nature of HomeChoice International's 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. 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. 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.
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