The market seemed underwhelmed by last week's earnings announcement from Time Watch Investments Limited (HKG:2033) despite the healthy numbers. Our analysis suggests that shareholders might be missing some positive underlying factors in the earnings report.
How Do Unusual Items Influence Profit?
For anyone who wants to understand Time Watch Investments' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by HK$7.5m 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, after all, that's exactly what the accounting terminology implies. If Time Watch Investments doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.
Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Time Watch Investments.
Our Take On Time Watch Investments' Profit Performance
Unusual items (expenses) detracted from Time Watch Investments' earnings over the last year, but we might see an improvement next year. Because of this, we think Time Watch Investments' earnings potential is at least as good as it seems, and maybe even better! And it's also positive that the company showed enough improvement to book a profit this year, after losing money last year. 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. If you want to do dive deeper into Time Watch Investments, you'd also look into what risks it is currently facing. Every company has risks, and we've spotted 3 warning signs for Time Watch Investments (of which 1 is a bit concerning!) you should know about.
Today we've zoomed in on a single data point to better understand the nature of Time Watch Investments' 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.