Following the solid earnings report from Starlite Holdings Limited (HKG:403), the market responded by bidding up the stock price. Despite this, our analysis suggests that there are some factors weakening the foundations of those good profit numbers.
Check out our latest analysis for Starlite Holdings
The Impact Of Unusual Items On Profit
For anyone who wants to understand Starlite Holdings' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from HK$2.0m 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 analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. Which is hardly surprising, given the name. If Starlite 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 Starlite Holdings.
Our Take On Starlite Holdings' Profit Performance
We'd posit that Starlite Holdings' statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Because of this, we think that it may be that Starlite Holdings' statutory profits are better than its underlying earnings power. The silver lining is that its EPS growth over the last year has been really wonderful, even if it's not a perfect measure. 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'd like to know more about Starlite Holdings as a business, it's important to be aware of any risks it's facing. For example, we've discovered 2 warning signs that you should run your eye over to get a better picture of Starlite Holdings.
This note has only looked at a single factor that sheds light on the nature of Starlite Holdings' 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 with significant insider holdings 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com