The market for Frontage Holdings Corporation's (HKG:1521) shares didn't move much after it posted weak earnings recently. We did some digging, and we believe the earnings are stronger than they seem.

The Impact Of Unusual Items On Profit

To properly understand Frontage Holdings' profit results, we need to consider the US$2.9m expense attributed to unusual items. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And that's hardly a surprise given these line items are considered unusual. If Frontage Holdings doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

Our Take On Frontage Holdings' Profit Performance

Unusual items (expenses) detracted from Frontage Holdings' earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Frontage Holdings' statutory profit actually understates its earnings potential! On the other hand, its EPS actually shrunk in 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 Frontage Holdings at this point in time. In terms of investment risks, we've identified 1 warning sign with Frontage Holdings, and understanding it should be part of your investment process.

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

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.