Zhuzhou CRRC Times Electric Co., Ltd.'s (HKG:3898) robust earnings report didn't manage to move the market for its stock. Our analysis suggests that this might be because shareholders have noticed some concerning underlying factors.
The Impact Of Unusual Items On Profit
For anyone who wants to understand Zhuzhou CRRC Times Electric's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥690m worth of 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. And that's as you'd expect, given these boosts are described as 'unusual'. If Zhuzhou CRRC Times Electric doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.
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 Zhuzhou CRRC Times Electric's Profit Performance
Arguably, Zhuzhou CRRC Times Electric's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Zhuzhou CRRC Times Electric's true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 61% 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. So while earnings quality is important, it's equally important to consider the risks facing Zhuzhou CRRC Times Electric at this point in time. You'd be interested to know, that we found 1 warning sign for Zhuzhou CRRC Times Electric and you'll want to know about it.
Today we've zoomed in on a single data point to better understand the nature of Zhuzhou CRRC Times Electric's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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 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.