Huabao Flavours & Fragrances' (SZSE:300741) Shareholders Have More To Worry About Than Only Soft Earnings

Despite Huabao Flavours & Fragrances Co., Ltd.'s (SZSE:300741) recent earnings report having lackluster headline numbers, the market responded positively. We think that shareholders might be missing some concerning factors that our analysis found.

See our latest analysis for Huabao Flavours & Fragrances

How Do Unusual Items Influence Profit?

For anyone who wants to understand Huabao Flavours & Fragrances' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥127m worth of unusual items. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. Which is hardly surprising, given the name. We can see that Huabao Flavours & Fragrances' positive unusual items were quite significant relative to its profit in the year to March 2024. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Huabao Flavours & Fragrances.

Our Take On Huabao Flavours & Fragrances' Profit Performance

As we discussed above, we think the significant positive unusual item makes Huabao Flavours & Fragrances' earnings a poor guide to its underlying profitability. For this reason, we think that Huabao Flavours & Fragrances' statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. In further bad news, its earnings per share decreased in the last year. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. For example, Huabao Flavours & Fragrances has 3 warning signs (and 2 which don't sit too well with us) we think you should know about.

This note has only looked at a single factor that sheds light on the nature of Huabao Flavours & Fragrances' 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. 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 that insiders are buying 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.