We Think That There Are Some Issues For Hangzhou Dadi Haiyang Environmental Protection (SZSE:301068) Beyond Its Promising Earnings

Following the solid earnings report from Hangzhou Dadi Haiyang Environmental Protection Co., Ltd. (SZSE:301068), the market responded by bidding up the stock price. While the profit numbers were good, our analysis has found some concerning factors that shareholders should be aware of.

See our latest analysis for Hangzhou Dadi Haiyang Environmental Protection

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Hangzhou Dadi Haiyang Environmental Protection's profit received a boost of CN¥9.5m 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 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 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

Arguably, Hangzhou Dadi Haiyang Environmental Protection's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Hangzhou Dadi Haiyang Environmental Protection's true underlying earnings power is actually less 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. So while earnings quality is important, it's equally important to consider the risks facing Hangzhou Dadi Haiyang Environmental Protection at this point in time. Every company has risks, and we've spotted 3 warning signs for Hangzhou Dadi Haiyang Environmental Protection (of which 2 don't sit too well with us!) you should know about.

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. 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 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.