Hospital Corporation of China Limited (HKG:3869) just reported healthy earnings but the stock price didn't move much. Our analysis suggests that investors might be missing some promising details.

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Hospital Corporation of China's profit was reduced by CN¥136m, due to unusual items, over the last year. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's hardly a surprise given these line items are considered unusual. If Hospital Corporation of China doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Hospital Corporation of China.

Our Take On Hospital Corporation of China's Profit Performance

Because unusual items detracted from Hospital Corporation of China's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Because of this, we think Hospital Corporation of China's earnings potential is at least as good as it seems, and maybe even better! And it's also positive that the company showed enough improvement to book a profit this year, after losing money last year. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. So while earnings quality is important, it's equally important to consider the risks facing Hospital Corporation of China at this point in time. Every company has risks, and we've spotted 2 warning signs for Hospital Corporation of China (of which 1 is a bit unpleasant!) you should know about.

This note has only looked at a single factor that sheds light on the nature of Hospital Corporation of China'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. 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.