Sam Woo Construction Group Limited (HKG:3822) announced strong profits, but the stock was stagnant. Our analysis suggests that this might be because shareholders have noticed some concerning underlying factors.

See our latest analysis for Sam Woo Construction Group

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Sam Woo Construction Group's profit received a boost of HK$11m in unusual items, over the last year. 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 crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. Which is hardly surprising, given the name. Sam Woo Construction Group had a rather significant contribution from unusual items relative to its profit to September 2023. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Sam Woo Construction Group.

Our Take On Sam Woo Construction Group's Profit Performance

As we discussed above, we think the significant positive unusual item makes Sam Woo Construction Group's earnings a poor guide to its underlying profitability. For this reason, we think that Sam Woo Construction Group's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. On the bright side, the company showed enough improvement to book a profit this year, after losing money last year. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. If you'd like to know more about Sam Woo Construction Group as a business, it's important to be aware of any risks it's facing. At Simply Wall St, we found 2 warning signs for Sam Woo Construction Group and we think they deserve your attention.

Today we've zoomed in on a single data point to better understand the nature of Sam Woo Construction Group's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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. 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 that insiders are buying 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.