The market shrugged off Guangdong Huate Gas Co., Ltd's (SHSE:688268) solid earnings report. Our analysis showed that there are some concerning factors in the earnings that investors may be cautious of.

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Guangdong Huate Gas' profit received a boost of CN¥18m in unusual items, over the last year. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. Which is hardly surprising, given the name. If Guangdong Huate Gas 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 Guangdong Huate Gas' Profit Performance

We'd posit that Guangdong Huate Gas' statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Because of this, we think that it may be that Guangdong Huate Gas' statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 36% per annum growth in EPS for the last three. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. So while earnings quality is important, it's equally important to consider the risks facing Guangdong Huate Gas at this point in time. In terms of investment risks, we've identified 2 warning signs with Guangdong Huate Gas, and understanding these bad boys should be part of your investment process.

This note has only looked at a single factor that sheds light on the nature of Guangdong Huate Gas' 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 with high insider ownership.

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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.