Pak Fah Yeow International Limited (HKG:239) just reported healthy earnings but the stock price didn't move much. Investors are probably missing some underlying factors which are encouraging for the future of the company.

Check out our latest analysis for Pak Fah Yeow International

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Pak Fah Yeow International's profit was reduced by HK$4.9m, due to unusual items, over the last year. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. 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 Pak Fah Yeow 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 Pak Fah Yeow International.

Our Take On Pak Fah Yeow International's Profit Performance

Because unusual items detracted from Pak Fah Yeow International's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Based on this observation, we consider it likely that Pak Fah Yeow International's statutory profit actually understates its earnings potential! And the EPS is up 34% over the last twelve months. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. So while earnings quality is important, it's equally important to consider the risks facing Pak Fah Yeow International at this point in time. For example, we've found that Pak Fah Yeow International has 3 warning signs (1 shouldn't be ignored!) that deserve your attention before going any further with your analysis.

This note has only looked at a single factor that sheds light on the nature of Pak Fah Yeow 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.