Hotel Properties Limited (SGX:H15) failed to move the stock market despite its solid earnings report. Our analysis suggests shareholders noticed something troubling in the numbers.
Check out our latest hotel real estate analysis
How do unusual items affect profits?
To properly understand Hotel Properties’ earnings numbers, we need to consider the S$646 million profit that was due to unusual items. While it’s always nice to have a higher profit, sometimes a large contribution from unusual items dampens our enthusiasm. When we analyzed the numbers of thousands of listed companies, we found that an increase from unusual items in a given year is often not repeated next year. Which is hardly surprising given the name. We can see that Hotel Properties’ positive unusual items in the year to June 2024 were quite significant relative to its profit. Therefore, we can expect the unusual items to make its statutory profit significantly higher than it would otherwise be.
Note: We always recommend investors to check balance sheet strength. Click here to access our balance sheet analysis for hotel properties.
Our assessment of the profit development of hotel properties
As mentioned, Hotel Properties’ strong upswing from unusual items won’t continue indefinitely, so statutory profits are unlikely to be a good indicator of underlying profitability. For this reason, we believe Hotel Properties’ statutory profits may not be a good indicator of underlying earnings power, and could leave investors feeling too positive about the company. The good news, however, is that while we need to look beyond the statutory numbers, these numbers are still improving, with earnings per share growing very strongly over the last year. Of course, we’ve only scratched the surface when analyzing earnings; one could also consider margins, forecast growth and return on capital, among other things. If you want to dive deeper into Hotel Properties, you should also examine what risks the company is currently facing. Case in point: We discovered 2 warning signs for hotel properties There are a few things you should be aware of, and one of them is a bit worrying.
Today we have focused on a single data point to better understand the nature of hotel property profits. But there is always more to discover if you are able to focus on the small details. Some people consider a high return on equity to be a good sign of a quality company. Although this may require a little research, you may find that free Collection of companies with high return on equity or this list of stocks with significant insider holdings may prove useful.
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This Simply Wall St article is of a general nature. We comment solely on the basis of historical data and analyst forecasts, using an unbiased methodology. Our articles do not constitute financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative materials. Simply Wall St does not hold any of the stocks mentioned.
