Haichang Ocean Park Holdings' (HKG:2255) Solid Profits Have Weak Fundamentals

Haichang Ocean Park Holdings Ltd.'s (HKG:2255) stock was strong after they reported robust earnings. However, our analysis suggests that shareholders may be missing some factors that indicate the earnings result was not as good as it looked.

See our latest analysis for Haichang Ocean Park Holdings

The Impact Of Unusual Items On Profit

For anyone who wants to understand Haichang Ocean Park Holdings' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥1.8b 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. And that's as you'd expect, given these boosts are described as 'unusual'. Haichang Ocean Park Holdings had a rather significant contribution from unusual items relative to its profit to December 2021. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

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 Haichang Ocean Park Holdings' Profit Performance

As we discussed above, we think the significant positive unusual item makes Haichang Ocean Park Holdings' earnings a poor guide to its underlying profitability. For this reason, we think that Haichang Ocean Park Holdings' statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. The good news is that it earned a profit in the last twelve months, despite its previous loss. 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. When we did our research, we found 4 warning signs for Haichang Ocean Park Holdings (2 are significant!) that we believe deserve your full attention.

Today we've zoomed in on a single data point to better understand the nature of Haichang Ocean Park Holdings' 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.