The recent earnings posted by Hunan Friendship&Apollo Commercial Co.,Ltd. (SZSE:002277) were solid, but the stock didn't move as much as we expected. However the statutory profit number doesn't tell the whole story, and we have found some factors which might be of concern to shareholders.
The Impact Of Unusual Items On Profit
To properly understand Hunan Friendship&Apollo CommercialLtd's profit results, we need to consider the CN¥33m gain attributed to unusual items. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. Which is hardly surprising, given the name. We can see that Hunan Friendship&Apollo CommercialLtd's positive unusual items were quite significant relative to its profit in the year to September 2024. 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 Hunan Friendship&Apollo CommercialLtd.
Our Take On Hunan Friendship&Apollo CommercialLtd's Profit Performance
As previously mentioned, Hunan Friendship&Apollo CommercialLtd's large boost from unusual items won't be there indefinitely, so its statutory earnings are probably a poor guide to its underlying profitability. As a result, we think it may well be the case that Hunan Friendship&Apollo CommercialLtd's underlying earnings power is lower 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. So while earnings quality is important, it's equally important to consider the risks facing Hunan Friendship&Apollo CommercialLtd at this point in time. Case in point: We've spotted 3 warning signs for Hunan Friendship&Apollo CommercialLtd you should be mindful of and 2 of them shouldn't be ignored.
Today we've zoomed in on a single data point to better understand the nature of Hunan Friendship&Apollo CommercialLtd'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.
