Impressive Earnings May Not Tell The Whole Story For Lihe Technology (Hunan) (SZSE:300800)

Unsurprisingly, Lihe Technology (Hunan) Co., Ltd.'s (SZSE:300800) stock price was strong on the back of its healthy earnings report. However, we think that shareholders may be missing some concerning details in the numbers.

See our latest analysis for Lihe Technology (Hunan)

How Do Unusual Items Influence Profit?

To properly understand Lihe Technology (Hunan)'s profit results, we need to consider the CN¥3.7m gain attributed to unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. 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. If Lihe Technology (Hunan) 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 Lihe Technology (Hunan).

Our Take On Lihe Technology (Hunan)'s Profit Performance

Arguably, Lihe Technology (Hunan)'s statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Lihe Technology (Hunan)'s statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 43% EPS growth 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. So while earnings quality is important, it's equally important to consider the risks facing Lihe Technology (Hunan) at this point in time. Case in point: We've spotted 3 warning signs for Lihe Technology (Hunan) you should be mindful of and 2 of these are potentially serious.

Today we've zoomed in on a single data point to better understand the nature of Lihe Technology (Hunan)'s profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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 that insiders are buying.

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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.