Investors signalled that they were pleased with Medialink Group Limited's (HKG:2230) most recent earnings report, with a strong stock price reaction. Looking deeper at the numbers, we found several encouraging factors beyond the headline profit numbers.
Check out our latest analysis for Medialink GroupSEHK:2230 Earnings and Revenue History August 4th 2022
The Impact Of Unusual Items On Profit
For anyone who wants to understand Medialink Group's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by HK$42m 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. Medialink Group took a rather significant hit from unusual items in the year to March 2022. All else being equal, this would likely have the effect of making the statutory profit look worse than its underlying earnings power.
Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Medialink Group.
Our Take On Medialink Group's Profit Performance
As we discussed above, we think the significant unusual expense will make Medialink Group's statutory profit lower than it would otherwise have been. Based on this observation, we consider it possible that Medialink Group's statutory profit actually understates its earnings potential! And the EPS is up 12% 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. Our analysis shows 4 warning signs for Medialink Group (1 doesn't sit too well with us!) and we strongly recommend you look at these before investing .
This note has only looked at a single factor that sheds light on the nature of Medialink Group's profit. But there are plenty of other ways to inform your opinion of a company. 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. 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.