Takbo Group Holdings Limited's (HKG:8436) robust earnings report didn't manage to move the market for its stock. We did some digging, and we found some concerning factors in the details.
The Impact Of Unusual Items On Profit
To properly understand Takbo Group Holdings' profit results, we need to consider the HK$910k gain attributed to unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And, after all, that's exactly what the accounting terminology implies. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).
Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Takbo Group Holdings.
Our Take On Takbo Group Holdings' Profit Performance
Arguably, Takbo Group Holdings' statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Takbo Group Holdings' statutory profits are better than its underlying earnings power. But the happy news is that, while acknowledging we have to look beyond the statutory numbers, those numbers are still improving, with EPS growing at a very high rate over the last year. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. So while earnings quality is important, it's equally important to consider the risks facing Takbo Group Holdings at this point in time. Be aware that Takbo Group Holdings is showing 2 warning signs in our investment analysis and 1 of those is a bit concerning...
This note has only looked at a single factor that sheds light on the nature of Takbo Group Holdings' profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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.