Following the solid earnings report from KPC Pharmaceuticals,Inc (SHSE:600422), the market responded by bidding up the stock price. However, we think that shareholders should be cautious as we found some worrying factors underlying the profit.

How Do Unusual Items Influence Profit?

For anyone who wants to understand KPC PharmaceuticalsInc's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥74m 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. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. Which is hardly surprising, given the name. If KPC PharmaceuticalsInc 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 KPC PharmaceuticalsInc's Profit Performance

Arguably, KPC PharmaceuticalsInc's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that KPC PharmaceuticalsInc's true underlying earnings power is actually less than its statutory profit. The good news is that, its earnings per share increased by 16% in the last year. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. If you'd like to know more about KPC PharmaceuticalsInc as a business, it's important to be aware of any risks it's facing. For example - KPC PharmaceuticalsInc has 1 warning sign we think you should be aware of.

This note has only looked at a single factor that sheds light on the nature of KPC PharmaceuticalsInc's profit. But there are plenty of other ways to inform your opinion of a company. Some people consider a high return on equity to be a good sign of a quality business. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

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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.