We Think Hengdeli Holdings' (HKG:3389) Healthy Earnings Might Be Conservative

Hengdeli Holdings Limited's (HKG:3389) recent earnings report didn't offer any surprises, with the shares unchanged over the last week. We did some digging, and we think that investors are missing some encouraging factors in the underlying numbers.

View our latest analysis for Hengdeli Holdings

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Hengdeli Holdings' profit was reduced by CN¥17m, due to unusual items, over the last year. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect Hengdeli Holdings 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 Hengdeli Holdings.

Our Take On Hengdeli Holdings' Profit Performance

Unusual items (expenses) detracted from Hengdeli Holdings' earnings over the last year, but we might see an improvement next year. Because of this, we think Hengdeli Holdings' earnings potential is at least as good as it seems, and maybe even better! And one can definitely find a positive in the fact that it made a profit this year, despite losing money 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. If you want to do dive deeper into Hengdeli Holdings, you'd also look into what risks it is currently facing. Case in point: We've spotted 1 warning sign for Hengdeli Holdings you should be aware of.

This note has only looked at a single factor that sheds light on the nature of Hengdeli 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 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.