Anhui Fengyuan Pharmaceutical's (SZSE:000153) Anemic Earnings Might Be Worse Than You Think

Anhui Fengyuan Pharmaceutical Co., Ltd.'s (SZSE:000153) stock showed strength, with investors undeterred by its weak earnings report. While shareholders may be willing to overlook soft profit numbers, we believe that they should also be taking into account some other factors which may be cause for concern.

View our latest analysis for Anhui Fengyuan Pharmaceutical

The Impact Of Unusual Items On Profit

For anyone who wants to understand Anhui Fengyuan Pharmaceutical's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥46m 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. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's as you'd expect, given these boosts are described as 'unusual'. If Anhui Fengyuan Pharmaceutical 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 Fengyuan Pharmaceutical.

Our Take On Anhui Fengyuan Pharmaceutical's Profit Performance

Arguably, Anhui Fengyuan Pharmaceutical's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Anhui Fengyuan Pharmaceutical's statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 37% per annum growth in EPS for the last three. 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. So while earnings quality is important, it's equally important to consider the risks facing Anhui Fengyuan Pharmaceutical at this point in time. In terms of investment risks, we've identified 2 warning signs with Anhui Fengyuan Pharmaceutical, and understanding these should be part of your investment process.

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