The market was pleased with the recent earnings report from Guangdong Kanghua Healthcare Group Co., Ltd. (HKG:3689), despite the profit numbers being soft. However, we think the company is showing some signs that things are more promising than they seem.
View our latest analysis for Guangdong Kanghua Healthcare Group
How Do Unusual Items Influence Profit?
Importantly, our data indicates that Guangdong Kanghua Healthcare Group's profit was reduced by CN¥14m, 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, after all, that's exactly what the accounting terminology implies. If Guangdong Kanghua Healthcare Group 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 Guangdong Kanghua Healthcare Group.
Our Take On Guangdong Kanghua Healthcare Group's Profit Performance
Unusual items (expenses) detracted from Guangdong Kanghua Healthcare Group's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Guangdong Kanghua Healthcare Group's statutory profit actually understates its earnings potential! On the other hand, its EPS actually shrunk in the last twelve months. 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. So while earnings quality is important, it's equally important to consider the risks facing Guangdong Kanghua Healthcare Group at this point in time. While conducting our analysis, we found that Guangdong Kanghua Healthcare Group has 2 warning signs and it would be unwise to ignore them.
This note has only looked at a single factor that sheds light on the nature of Guangdong Kanghua Healthcare Group'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 with significant insider holdings 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.