Anhui Fengyuan Pharmaceutical Co., Ltd.'s (SZSE:000153) stock showed strength, with investors undeterred by its weak earnings report. While shareholders may be willing to overlook soft profit numbers, we believe that they should also be taking into account some other factors which may be cause for concern.

The Impact Of Unusual Items On Profit

To properly understand Anhui Fengyuan Pharmaceutical's profit results, we need to consider the CN¥46m gain attributed to unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. 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 Anhui Fengyuan Pharmaceutical 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 Anhui Fengyuan Pharmaceutical.

Our Take On Anhui Fengyuan Pharmaceutical's Profit Performance

Arguably, Anhui Fengyuan Pharmaceutical's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Anhui Fengyuan Pharmaceutical's true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 37% per annum growth in EPS for the last three. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. 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, we've discovered 2 warning signs that you should run your eye over to get a better picture of Anhui Fengyuan Pharmaceutical.

Today we've zoomed in on a single data point to better understand the nature of Anhui Fengyuan Pharmaceutical's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.