Guangdong Huate Gas' (SHSE:688268) Profits May Not Reveal Underlying Issues

The market shrugged off Guangdong Huate Gas Co., Ltd's (SHSE:688268) solid earnings report. We think that investors might be worried about some concerning underlying factors.

View our latest analysis for Guangdong Huate Gas

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Guangdong Huate Gas' profit received a boost of CN¥18m 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. 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. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

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 Guangdong Huate Gas' Profit Performance

We'd posit that Guangdong Huate Gas' statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Because of this, we think that it may be that Guangdong Huate Gas' statutory profits are better than its underlying earnings power. Nonetheless, it's still worth noting that its earnings per share have grown at 36% 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. So while earnings quality is important, it's equally important to consider the risks facing Guangdong Huate Gas at this point in time. Case in point: We've spotted 2 warning signs for Guangdong Huate Gas you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Guangdong Huate Gas' 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. While it might take a little research on your behalf, you may find this free collection of companies boasting high return on equity, or this list of stocks with significant insider holdings to be useful.

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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.