FIT Hon Teng Limited (HKG:6088) just reported some strong earnings, and the market reacted accordingly with a healthy uplift in the share price. However, our analysis suggests that shareholders may be missing some factors that indicate the earnings result was not as good as it looked.

How Do Unusual Items Influence Profit?

For anyone who wants to understand FIT Hon Teng's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from US$29m worth of unusual items. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. 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 that's as you'd expect, given these boosts are described as 'unusual'. If FIT Hon Teng doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current 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 FIT Hon Teng's Profit Performance

We'd posit that FIT Hon Teng's 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 FIT Hon Teng's statutory profits are better than its underlying earnings power. But on the bright side, its earnings per share have grown at an extremely impressive rate over the last three years. 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 FIT Hon Teng as a business, it's important to be aware of any risks it's facing. While conducting our analysis, we found that FIT Hon Teng has 2 warning signs and it would be unwise to ignore them.

Today we've zoomed in on a single data point to better understand the nature of FIT Hon Teng's 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. 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.