Despite posting some strong earnings, the market for Heren Health Co.,Ltd.'s (SZSE:300550) stock hasn't moved much. Our analysis suggests that this might be because shareholders have noticed some concerning underlying factors.

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Heren HealthLtd's profit received a boost of CN¥2.6m in unusual items, over the last year. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. 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. If Heren HealthLtd doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Heren HealthLtd.

Our Take On Heren HealthLtd's Profit Performance

Arguably, Heren HealthLtd's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Heren HealthLtd's true underlying earnings power is actually less than its statutory profit. The good news is that it earned a profit in the last twelve months, despite its previous loss. 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. Every company has risks, and we've spotted 1 warning sign for Heren HealthLtd you should know about.

This note has only looked at a single factor that sheds light on the nature of Heren HealthLtd'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. 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.