The market seemed underwhelmed by last week's earnings announcement from Hongda High-Tech Holding Co.,Ltd. (SZSE:002144) despite the healthy numbers. We did some digging, and we think that investors are missing some encouraging factors in the underlying numbers.

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Hongda High-Tech HoldingLtd's profit was reduced by CN¥38m, due to unusual items, over the last year. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. 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. Hongda High-Tech HoldingLtd took a rather significant hit from unusual items in the year to March 2024. As a result, we can surmise that the unusual items made its statutory profit significantly weaker 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 Hongda High-Tech HoldingLtd.

Our Take On Hongda High-Tech HoldingLtd's Profit Performance

As we mentioned previously, the Hongda High-Tech HoldingLtd's profit was hampered by unusual items in the last year. Because of this, we think Hongda High-Tech HoldingLtd's underlying earnings potential is as good as, or possibly even better, than the statutory profit makes it seem! And on top of that, its earnings per share have grown at 15% per year over the last three years. 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. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. To help with this, we've discovered 3 warning signs (1 is a bit unpleasant!) that you ought to be aware of before buying any shares in Hongda High-Tech HoldingLtd.

This note has only looked at a single factor that sheds light on the nature of Hongda High-Tech HoldingLtd'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.