The market seemed underwhelmed by last week's earnings announcement from Huapont Life Sciences Co.,Ltd. (SZSE:002004) despite the healthy numbers. We did some analysis to find out why and believe that investors might be missing some encouraging factors contained in the earnings.

How Do Unusual Items Influence Profit?

For anyone who wants to understand Huapont Life SciencesLtd's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CN¥265m 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. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that's exactly what the accounting terminology implies. If Huapont Life SciencesLtd 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 Huapont Life SciencesLtd.

Our Take On Huapont Life SciencesLtd's Profit Performance

Unusual items (expenses) detracted from Huapont Life SciencesLtd's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Huapont Life SciencesLtd's statutory profit actually understates its earnings potential! And the EPS is up 13% over the last twelve months. 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Every company has risks, and we've spotted 3 warning signs for Huapont Life SciencesLtd (of which 2 are a bit concerning!) you should know about.

Today we've zoomed in on a single data point to better understand the nature of Huapont Life SciencesLtd'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. 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.