A lackluster earnings announcement from New Century Group Hong Kong Limited (HKG:234) last week didn't sink the stock price. However, we believe that investors should be aware of some underlying factors which may be of concern.

How Do Unusual Items Influence Profit?

Importantly, our data indicates that New Century Group Hong Kong's profit received a boost of HK$10m 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. 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, after all, that's exactly what the accounting terminology implies. We can see that New Century Group Hong Kong's positive unusual items were quite significant relative to its profit in the year to March 2024. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of New Century Group Hong Kong.

Our Take On New Century Group Hong Kong's Profit Performance

As we discussed above, we think the significant positive unusual item makes New Century Group Hong Kong's earnings a poor guide to its underlying profitability. As a result, we think it may well be the case that New Century Group Hong Kong's underlying earnings power is lower than its statutory profit. In further bad news, its earnings per share decreased in the 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. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. You'd be interested to know, that we found 3 warning signs for New Century Group Hong Kong and you'll want to know about these.

This note has only looked at a single factor that sheds light on the nature of New Century Group Hong Kong'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 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.

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