Anhui Huangshan Capsule's (SZSE:002817) Shareholders Have More To Worry About Than Only Soft Earnings

The subdued market reaction suggests that Anhui Huangshan Capsule Co., Ltd.'s (SZSE:002817) recent earnings didn't contain any surprises. However, we believe that investors should be aware of some underlying factors which may be of concern.

See our latest analysis for Anhui Huangshan Capsule

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Anhui Huangshan Capsule's profit received a boost of CN¥4.8m 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. Which is hardly surprising, given the name. If Anhui Huangshan Capsule 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 Anhui Huangshan Capsule.

Our Take On Anhui Huangshan Capsule's Profit Performance

We'd posit that Anhui Huangshan Capsule's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Therefore, it seems possible to us that Anhui Huangshan Capsule's true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 8.4% per annum growth in EPS for the last three. 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. If you want to do dive deeper into Anhui Huangshan Capsule, you'd also look into what risks it is currently facing. At Simply Wall St, we found 1 warning sign for Anhui Huangshan Capsule and we think they deserve your attention.

Today we've zoomed in on a single data point to better understand the nature of Anhui Huangshan Capsule'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 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.