A lackluster earnings announcement from Hunan Haili Chemical Industry Co.,Ltd. (SHSE:600731) 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 Hunan Haili Chemical IndustryLtd's profit received a boost of CN¥56m 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. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).
Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Hunan Haili Chemical IndustryLtd.
Our Take On Hunan Haili Chemical IndustryLtd's Profit Performance
Arguably, Hunan Haili Chemical IndustryLtd's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Hunan Haili Chemical IndustryLtd's statutory profits are better than its underlying earnings power. Sadly, its EPS was down over the last twelve months. 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 want to do dive deeper into Hunan Haili Chemical IndustryLtd, you'd also look into what risks it is currently facing. Case in point: We've spotted 1 warning sign for Hunan Haili Chemical IndustryLtd you should be aware of.
Today we've zoomed in on a single data point to better understand the nature of Hunan Haili Chemical IndustryLtd'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 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.