Anhui Huaren Health Pharmaceutical Co., Ltd.'s (SZSE:301408) stock showed strength, with investors undeterred by its weak earnings report. We think that shareholders might be missing some concerning factors that our analysis found.

The Impact Of Unusual Items On Profit

To properly understand Anhui Huaren Health Pharmaceutical's profit results, we need to consider the CN¥22m gain attributed to 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, after all, that's exactly what the accounting terminology implies. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Anhui Huaren Health Pharmaceutical.

Our Take On Anhui Huaren Health Pharmaceutical's Profit Performance

Arguably, Anhui Huaren Health Pharmaceutical's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Anhui Huaren Health Pharmaceutical's statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 12% per annum growth in EPS for the last three. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. If you want to do dive deeper into Anhui Huaren Health Pharmaceutical, you'd also look into what risks it is currently facing. In terms of investment risks, we've identified 1 warning sign with Anhui Huaren Health Pharmaceutical, and understanding it should be part of your investment process.

This note has only looked at a single factor that sheds light on the nature of Anhui Huaren Health Pharmaceutical's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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. 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.