Hangzhou Dadi Haiyang Environmental Protection Co., Ltd.'s (SZSE:301068) stock was strong after they recently reported robust earnings. However, we think that shareholders may be missing some concerning details in the numbers.

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Hangzhou Dadi Haiyang Environmental Protection's profit received a boost of CN¥8.7m in unusual items, over the last year. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. 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 Hangzhou Dadi Haiyang Environmental Protection 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 Hangzhou Dadi Haiyang Environmental Protection.

Our Take On Hangzhou Dadi Haiyang Environmental Protection's Profit Performance

We'd posit that Hangzhou Dadi Haiyang Environmental Protection's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Therefore, it seems possible to us that Hangzhou Dadi Haiyang Environmental Protection's true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 10% 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 if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. At Simply Wall St, we found 1 warning sign for Hangzhou Dadi Haiyang Environmental Protection and we think they deserve your attention.

This note has only looked at a single factor that sheds light on the nature of Hangzhou Dadi Haiyang Environmental Protection'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. 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.