GDH Guangnan (Holdings)'s (HKG:1203) Solid Profits Have Weak Fundamentals

GDH Guangnan (Holdings) Limited (HKG:1203) just reported some strong earnings, and the market reacted accordingly with a healthy uplift in the share price. However, our analysis suggests that shareholders may be missing some factors that indicate the earnings result was not as good as it looked.

Our free stock report includes 2 warning signs investors should be aware of before investing in GDH Guangnan (Holdings). Read for free now.

How Do Unusual Items Influence Profit?

For anyone who wants to understand GDH Guangnan (Holdings)'s profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from HK$17m worth of unusual items. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. 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'. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of GDH Guangnan (Holdings).

Our Take On GDH Guangnan (Holdings)'s Profit Performance

We'd posit that GDH Guangnan (Holdings)'s statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Therefore, it seems possible to us that GDH Guangnan (Holdings)'s true underlying earnings power is actually less than its statutory profit. But the good news is that its EPS growth over the last three years has been very impressive. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. If you want to do dive deeper into GDH Guangnan (Holdings), you'd also look into what risks it is currently facing. At Simply Wall St, we found 2 warning signs for GDH Guangnan (Holdings) and we think they deserve your attention.

This note has only looked at a single factor that sheds light on the nature of GDH Guangnan (Holdings)'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 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.