Shareholders appeared unconcerned with Hefei Urban Construction Development Co., Ltd's (SZSE:002208) lackluster earnings report last week. We did some digging, and we believe the earnings are stronger than they seem.

The Impact Of Unusual Items On Profit

For anyone who wants to understand Hefei Urban Construction Development's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CN¥227m due to unusual items. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And that's hardly a surprise given these line items are considered unusual. If Hefei Urban Construction Development doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Hefei Urban Construction Development.

Our Take On Hefei Urban Construction Development's Profit Performance

Because unusual items detracted from Hefei Urban Construction Development's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Because of this, we think Hefei Urban Construction Development's earnings potential is at least as good as it seems, and maybe even better! On the other hand, its EPS actually shrunk in 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. For instance, we've identified 6 warning signs for Hefei Urban Construction Development (3 shouldn't be ignored) you should be familiar with.

This note has only looked at a single factor that sheds light on the nature of Hefei Urban Construction Development'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 with significant insider holdings to be useful.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.