The stock price didn't jump after Lushang Freda Pharmaceutical Co.,Ltd. (SHSE:600223) posted decent earnings last week. We think that investors might be worried about some concerning underlying factors.

How Do Unusual Items Influence Profit?

For anyone who wants to understand Lushang Freda PharmaceuticalLtd's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥26m worth of unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's as you'd expect, given these boosts are described as 'unusual'. If Lushang Freda PharmaceuticalLtd 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 Lushang Freda PharmaceuticalLtd's Profit Performance

Arguably, Lushang Freda PharmaceuticalLtd's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Lushang Freda PharmaceuticalLtd's statutory profits are better than its underlying earnings power. But the happy news is that, while acknowledging we have to look beyond the statutory numbers, those numbers are still improving, with EPS growing at a very high rate over 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. For example - Lushang Freda PharmaceuticalLtd has 1 warning sign we think you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Lushang Freda PharmaceuticalLtd'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. 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.