Lee's Pharmaceutical Holdings' (HKG:950) Earnings Are Weaker Than They Seem

Despite posting some strong earnings, the market for Lee's Pharmaceutical Holdings Limited's (HKG:950) stock hasn't moved much. We did some digging, and we found some concerning factors in the details.

Check out our latest analysis for Lee's Pharmaceutical Holdings

The Impact Of Unusual Items On Profit

For anyone who wants to understand Lee's Pharmaceutical Holdings' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from HK$6.9m 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, after all, that's exactly what the accounting terminology implies. 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 Lee's Pharmaceutical Holdings.

Our Take On Lee's Pharmaceutical Holdings' Profit Performance

We'd posit that Lee's Pharmaceutical Holdings' statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Because of this, we think that it may be that Lee's Pharmaceutical Holdings' statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 62% EPS growth in the last year. 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. To that end, you should learn about the 2 warning signs we've spotted with Lee's Pharmaceutical Holdings (including 1 which shouldn't be ignored).

This note has only looked at a single factor that sheds light on the nature of Lee's Pharmaceutical Holdings' 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 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.