Shandong Homey Aquatic Development Co.,Ltd. (SHSE:600467) announced strong profits, but the stock was stagnant. We did some digging, and we found some concerning factors in the details.

See our latest analysis for Shandong Homey Aquatic DevelopmentLtd

How Do Unusual Items Influence Profit?

To properly understand Shandong Homey Aquatic DevelopmentLtd's profit results, we need to consider the CN¥41m gain attributed to unusual items. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. 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. We can see that Shandong Homey Aquatic DevelopmentLtd's positive unusual items were quite significant relative to its profit in the year to March 2022. 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 Shandong Homey Aquatic DevelopmentLtd.

Our Take On Shandong Homey Aquatic DevelopmentLtd's Profit Performance

As we discussed above, we think the significant positive unusual item makes Shandong Homey Aquatic DevelopmentLtd's earnings a poor guide to its underlying profitability. For this reason, we think that Shandong Homey Aquatic DevelopmentLtd's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. But at least holders can take some solace from the 7.4% per annum growth in EPS for the last three. 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. So while earnings quality is important, it's equally important to consider the risks facing Shandong Homey Aquatic DevelopmentLtd at this point in time. For example, Shandong Homey Aquatic DevelopmentLtd has 3 warning signs (and 1 which is potentially serious) we think you should know about.

This note has only looked at a single factor that sheds light on the nature of Shandong Homey Aquatic DevelopmentLtd'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 that insiders are buying 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.