Hengsheng Energy Co., Ltd's (SHSE:605580) robust recent earnings didn't do much to move the stock. We think this is due to investors looking beyond the statutory profits and being concerned with what they see.

How Do Unusual Items Influence Profit?

For anyone who wants to understand Hengsheng Energy's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥65m worth of unusual items. 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 that's as you'd expect, given these boosts are described as 'unusual'. Hengsheng Energy had a rather significant contribution from unusual items relative to its profit to September 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 Hengsheng Energy.

Our Take On Hengsheng Energy's Profit Performance

As we discussed above, we think the significant positive unusual item makes Hengsheng Energy's earnings a poor guide to its underlying profitability. For this reason, we think that Hengsheng Energy's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. The good news is that, its earnings per share increased by 8.6% 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 want to do dive deeper into Hengsheng Energy, you'd also look into what risks it is currently facing. You'd be interested to know, that we found 2 warning signs for Hengsheng Energy and you'll want to know about them.

Today we've zoomed in on a single data point to better understand the nature of Hengsheng Energy's profit. But there are plenty of other ways to inform your opinion of a company. 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.