The Hongkong and Shanghai Hotels, Limited's (HKG:45) robust earnings report didn't manage to move the market for its stock. We did some digging, and we found some concerning factors in the details.

Check out our latest analysis for Hongkong and Shanghai Hotels

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Hongkong and Shanghai Hotels' profit received a boost of HK$494m in unusual items, over the last year. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. Which is hardly surprising, given the name. Hongkong and Shanghai Hotels had a rather significant contribution from unusual items relative to its profit to June 2022. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

Our data indicates that Hongkong and Shanghai Hotels insiders have been buying shares! If you are like me, that'll make you wonder who exactly bought... and what price they paid! Soclick here to find out (using our intuitive visualisation of insider trading).

Our Take On Hongkong and Shanghai Hotels' Profit Performance

As we discussed above, we think the significant positive unusual item makes Hongkong and Shanghai Hotels' earnings a poor guide to its underlying profitability. For this reason, we think that Hongkong and Shanghai Hotels' statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. The good news is that it earned a profit in the last twelve months, despite its previous loss. 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. For example, we've found that Hongkong and Shanghai Hotels has 2 warning signs (1 can't be ignored!) that deserve your attention before going any further with your analysis.

Today we've zoomed in on a single data point to better understand the nature of Hongkong and Shanghai Hotels' 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. 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.