Investors were disappointed with the weak earnings posted by China-Hongkong Photo Products Holdings Limited (HKG:1123 ). While the headline numbers were soft, we believe that investors might be missing some encouraging factors.

How Do Unusual Items Influence Profit?

Importantly, our data indicates that China-Hongkong Photo Products Holdings' profit was reduced by HK$9.8m, due to unusual items, over the last year. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. 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. Assuming those unusual expenses don't come up again, we'd therefore expect China-Hongkong Photo Products Holdings to produce a higher profit next year, all else being equal.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of China-Hongkong Photo Products Holdings.

Our Take On China-Hongkong Photo Products Holdings' Profit Performance

Unusual items (expenses) detracted from China-Hongkong Photo Products Holdings' earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that China-Hongkong Photo Products Holdings' statutory profit actually understates its earnings potential! Unfortunately, though, its earnings per share actually fell back 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. Every company has risks, and we've spotted 3 warning signs for China-Hongkong Photo Products Holdings you should know about.

Today we've zoomed in on a single data point to better understand the nature of China-Hongkong Photo Products Holdings' profit. But there are plenty of other ways to inform your opinion of a company. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to 'follow the money' and search out stocks that insiders are buying. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com