Sichuan Huafeng Technology's (SHSE:688629) Anemic Earnings Might Be Worse Than You Think

A lackluster earnings announcement from Sichuan Huafeng Technology Co., LTD. (SHSE:688629) last week didn't sink the stock price. We think that investors are worried about some weaknesses underlying the earnings.

Check out our latest analysis for Sichuan Huafeng Technology

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Sichuan Huafeng Technology's profit received a boost of CN¥55m 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. And that's as you'd expect, given these boosts are described as 'unusual'. We can see that Sichuan Huafeng Technology's positive unusual items were quite significant relative to its profit in the year to December 2023. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

Our Take On Sichuan Huafeng Technology's Profit Performance

As we discussed above, we think the significant positive unusual item makes Sichuan Huafeng Technology's earnings a poor guide to its underlying profitability. As a result, we think it may well be the case that Sichuan Huafeng Technology's underlying earnings power is lower than its statutory profit. Sadly, its EPS was down over the last twelve months. 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 2 warning signs for Sichuan Huafeng Technology (of which 1 is significant!) you should know about.

This note has only looked at a single factor that sheds light on the nature of Sichuan Huafeng Technology's profit. But there are plenty of other ways to inform your opinion of a company. 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 that insiders are buying.

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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.