Lihe Technology (Hunan) Co., Ltd. (SZSE:300800) just reported some strong earnings, and the market reacted accordingly with a healthy uplift in the share price. We did some analysis and think that investors are missing some details hidden beneath the profit numbers.

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Lihe Technology (Hunan)'s profit received a boost of CN¥3.7m 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 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 Lihe Technology (Hunan) doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Lihe Technology (Hunan).

Our Take On Lihe Technology (Hunan)'s Profit Performance

Arguably, Lihe Technology (Hunan)'s statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Lihe Technology (Hunan)'s true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 43% EPS growth 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. 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. To that end, you should learn about the 3 warning signs we've spotted with Lihe Technology (Hunan) (including 2 which are potentially serious).

This note has only looked at a single factor that sheds light on the nature of Lihe Technology (Hunan)'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. 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.