Weak Statutory Earnings May Not Tell The Whole Story For Hangzhou Chuhuan Science & Technology (SZSE:001336)

The subdued market reaction suggests that Hangzhou Chuhuan Science & Technology Company Limited's (SZSE:001336) recent earnings didn't contain any surprises. However, we believe that investors should be aware of some underlying factors which may be of concern.

View our latest analysis for Hangzhou Chuhuan Science & Technology

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Hangzhou Chuhuan Science & Technology's profit received a boost of CN¥6.4m in unusual items, over the last year. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. And that's as you'd expect, given these boosts are described as 'unusual'. If Hangzhou Chuhuan Science & Technology 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 Chuhuan Science & Technology.

Our Take On Hangzhou Chuhuan Science & Technology's Profit Performance

Arguably, Hangzhou Chuhuan Science & Technology's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Hangzhou Chuhuan Science & Technology's statutory profits are better than its underlying earnings power. In further bad news, its earnings per share decreased in the last year. 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. For instance, we've identified 2 warning signs for Hangzhou Chuhuan Science & Technology (1 shouldn't be ignored) you should be familiar with.

This note has only looked at a single factor that sheds light on the nature of Hangzhou Chuhuan Science & 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 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.