There May Be Reason For Hope In Renhe Pharmacy's (SZSE:000650) Disappointing Earnings

Soft earnings didn't appear to concern Renhe Pharmacy Co., Ltd.'s (SZSE:000650) shareholders over the last week. Our analysis suggests that while the profits are soft, the foundations of the business are strong.

View our latest analysis for Renhe Pharmacy

How Do Unusual Items Influence Profit?

For anyone who wants to understand Renhe Pharmacy's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CN¥208m due to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's hardly a surprise given these line items are considered unusual. Assuming those unusual expenses don't come up again, we'd therefore expect Renhe Pharmacy to produce a higher profit next year, all else being equal.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Renhe Pharmacy.

Our Take On Renhe Pharmacy's Profit Performance

Unusual items (expenses) detracted from Renhe Pharmacy's earnings over the last year, but we might see an improvement next year. Because of this, we think Renhe Pharmacy's earnings potential is at least as good as it seems, and maybe even better! Unfortunately, though, its earnings per share actually fell back over the last year. 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. In terms of investment risks, we've identified 1 warning sign with Renhe Pharmacy, and understanding this should be part of your investment process.

This note has only looked at a single factor that sheds light on the nature of Renhe Pharmacy's 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.