Investors were disappointed with the weak earnings posted by China National Building Material Company Limited (HKG:3323 ). However, our analysis suggests that the soft headline numbers are getting counterbalanced by some positive underlying factors.
See our latest analysis for China National Building Material
The Impact Of Unusual Items On Profit
To properly understand China National Building Material's profit results, we need to consider the CN¥792m expense attributed to unusual items. 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. Assuming those unusual expenses don't come up again, we'd therefore expect China National Building Material to produce a higher profit next year, all else being equal.
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 China National Building Material's Profit Performance
Because unusual items detracted from China National Building Material's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Based on this observation, we consider it likely that China National Building Material's statutory profit actually understates its earnings potential! Unfortunately, though, its earnings per share actually fell back over 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. So while earnings quality is important, it's equally important to consider the risks facing China National Building Material at this point in time. To that end, you should learn about the 3 warning signs we've spotted with China National Building Material (including 1 which is a bit concerning).
This note has only looked at a single factor that sheds light on the nature of China National Building Material'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.