Capital Environment Holdings Limited's (HKG:3989) solid earnings announcement recently didn't do much to the stock price. We did some digging, and we think that investors are missing some encouraging factors in the underlying numbers.

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Capital Environment Holdings' profit was reduced by CN¥208m, due to unusual items, over the last year. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. 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 Capital Environment Holdings 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 Capital Environment Holdings.

Our Take On Capital Environment Holdings' Profit Performance

Unusual items (expenses) detracted from Capital Environment Holdings' earnings over the last year, but we might see an improvement next year. Because of this, we think Capital Environment Holdings' earnings potential is at least as good as it seems, and maybe even better! And one can definitely find a positive in the fact that it made a profit this year, despite 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'd like to know more about Capital Environment Holdings as a business, it's important to be aware of any risks it's facing. To that end, you should learn about the 3 warning signs we've spotted with Capital Environment Holdings (including 2 which don't sit too well with us).

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