The market for Hangzhou Dadi Haiyang Environmental Protection Co., Ltd.'s (SZSE:301068) stock was strong after it released a healthy earnings report last week. While the profit numbers were good, our analysis has found some concerning factors that shareholders should be aware of.
The Impact Of Unusual Items On Profit
Importantly, our data indicates that Hangzhou Dadi Haiyang Environmental Protection's profit received a boost of CN¥9.5m in unusual items, over the last year. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. 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. If Hangzhou Dadi Haiyang Environmental Protection doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.
Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Hangzhou Dadi Haiyang Environmental Protection.
Our Take On Hangzhou Dadi Haiyang Environmental Protection's Profit Performance
We'd posit that Hangzhou Dadi Haiyang Environmental Protection's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Therefore, it seems possible to us that Hangzhou Dadi Haiyang Environmental Protection's true underlying earnings power is actually less than its statutory profit. In further bad news, its earnings per share decreased 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. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. For example, Hangzhou Dadi Haiyang Environmental Protection has 3 warning signs (and 2 which are a bit unpleasant) we think you should know about.
This note has only looked at a single factor that sheds light on the nature of Hangzhou Dadi Haiyang Environmental Protection'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 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.