New Hope Dairy's (SZSE:002946) Solid Earnings Are Supported By Other Strong Factors

New Hope Dairy Co., Ltd. (SZSE:002946) just reported healthy earnings but the stock price didn't move much. We think that investors have missed some encouraging factors underlying the profit figures.

See our latest analysis for New Hope Dairy

The Impact Of Unusual Items On Profit

For anyone who wants to understand New Hope Dairy's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CN¥91m due to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. 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 New Hope Dairy doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

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 New Hope Dairy's Profit Performance

Unusual items (expenses) detracted from New Hope Dairy's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that New Hope Dairy's statutory profit actually understates its earnings potential! And the EPS is up 41% annually, over the last three years. 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Case in point: We've spotted 2 warning signs for New Hope Dairy you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of New Hope Dairy's profit. But there are plenty of other ways to inform your opinion of a company. 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.