A lackluster earnings announcement from Haohua Chemical Science & Technology Corp., Ltd. (SHSE:600378) last week didn't sink the stock price. However, we believe that investors should be aware of some underlying factors which may be of concern.

The Impact Of Unusual Items On Profit

For anyone who wants to understand Haohua Chemical Science & Technology's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥83m 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. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. Which is hardly surprising, given the name. 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).

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 Haohua Chemical Science & Technology's Profit Performance

Arguably, Haohua Chemical Science & Technology's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Haohua Chemical Science & Technology's true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 13% per annum growth in EPS for the last three. 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. If you'd like to know more about Haohua Chemical Science & Technology as a business, it's important to be aware of any risks it's facing. Case in point: We've spotted 1 warning sign for Haohua Chemical Science & Technology you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Haohua Chemical Science & Technology's 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.