A lackluster earnings announcement from Great Wall Pan Asia Holdings Limited (HKG:583) last week didn't sink the stock price. We think that investors are worried about some weaknesses underlying the earnings.
The Impact Of Unusual Items On Profit
For anyone who wants to understand Great Wall Pan Asia Holdings' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from HK$75m worth of unusual items. 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. And that's as you'd expect, given these boosts are described as 'unusual'. If Great Wall Pan Asia Holdings doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.
Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Great Wall Pan Asia Holdings.
Our Take On Great Wall Pan Asia Holdings' Profit Performance
Arguably, Great Wall Pan Asia Holdings' statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Great Wall Pan Asia Holdings' statutory profits are better than its underlying earnings power. In further bad news, its earnings per share decreased in the 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 if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. When we did our research, we found 4 warning signs for Great Wall Pan Asia Holdings (2 make us uncomfortable!) that we believe deserve your full attention.
Today we've zoomed in on a single data point to better understand the nature of Great Wall Pan Asia Holdings' profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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. 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.