Hunan Fangsheng Pharmaceutical's (SHSE:603998) Earnings Are Weaker Than They Seem

Despite announcing strong earnings, Hunan Fangsheng Pharmaceutical Co., Ltd.'s (SHSE:603998) stock was sluggish. We think that the market might be paying attention to some underlying factors that they find to be concerning.

See our latest analysis for Hunan Fangsheng Pharmaceutical

How Do Unusual Items Influence Profit?

To properly understand Hunan Fangsheng Pharmaceutical's profit results, we need to consider the CN¥74m gain attributed to unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. 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. We can see that Hunan Fangsheng Pharmaceutical's positive unusual items were quite significant relative to its profit in the year to September 2024. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

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 Hunan Fangsheng Pharmaceutical's Profit Performance

As previously mentioned, Hunan Fangsheng Pharmaceutical's large boost from unusual items won't be there indefinitely, so its statutory earnings are probably a poor guide to its underlying profitability. For this reason, we think that Hunan Fangsheng Pharmaceutical's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. But on the bright side, its earnings per share have grown at an extremely impressive rate over the last three years. 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. If you want to do dive deeper into Hunan Fangsheng Pharmaceutical, you'd also look into what risks it is currently facing. In terms of investment risks, we've identified 2 warning signs with Hunan Fangsheng Pharmaceutical, and understanding these bad boys should be part of your investment process.

This note has only looked at a single factor that sheds light on the nature of Hunan Fangsheng Pharmaceutical's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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 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.