The market seemed underwhelmed by last week's earnings announcement from SOCAM Development Limited (HKG:983) despite the healthy numbers. Our analysis suggests that shareholders might be missing some positive underlying factors in the earnings report.

See our latest analysis for SOCAM Development

How Do Unusual Items Influence Profit?

To properly understand SOCAM Development's profit results, we need to consider the HK$124m expense attributed to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's hardly a surprise given these line items are considered unusual. If SOCAM Development doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

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

Our Take On SOCAM Development's Profit Performance

Because unusual items detracted from SOCAM Development's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Because of this, we think SOCAM Development's earnings potential is at least as good as it seems, and maybe even better! And the EPS is up 46% over the last twelve months. 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. Every company has risks, and we've spotted 4 warning signs for SOCAM Development (of which 1 is significant!) you should know about.

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