The subdued stock price reaction suggests that APAC Resources Limited's (HKG:1104) strong earnings didn't offer any surprises. Investors are probably missing some underlying factors which are encouraging for the future of the company.
The Impact Of Unusual Items On Profit
For anyone who wants to understand APAC Resources' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by HK$102m due 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. In the twelve months to December 2023, APAC Resources had a big unusual items expense. As a result, we can surmise that the unusual items made its statutory profit significantly weaker than it would otherwise be.
Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of APAC Resources.
Our Take On APAC Resources' Profit Performance
As we mentioned previously, the APAC Resources' profit was hampered by unusual items in the last year. Because of this, we think APAC Resources' underlying earnings potential is as good as, or possibly even better, than the statutory profit makes it seem! And it's also positive that the company showed enough improvement to book a profit this year, after losing money last year. 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 while earnings quality is important, it's equally important to consider the risks facing APAC Resources at this point in time. In terms of investment risks, we've identified 3 warning signs with APAC Resources, and understanding these should be part of your investment process.
Today we've zoomed in on a single data point to better understand the nature of APAC Resources' 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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.
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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.