Guizhou Guihang Automotive ComponentsLtd's (SHSE:600523) Earnings Are Weaker Than They Seem

Despite posting some strong earnings, the market for Guizhou Guihang Automotive Components Co.,Ltd's (SHSE:600523) stock hasn't moved much. Our analysis suggests that this might be because shareholders have noticed some concerning underlying factors.

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The Impact Of Unusual Items On Profit

For anyone who wants to understand Guizhou Guihang Automotive ComponentsLtd's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥29m worth of unusual items. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And that's as you'd expect, given these boosts are described as 'unusual'. If Guizhou Guihang Automotive ComponentsLtd 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 Guizhou Guihang Automotive ComponentsLtd.

Our Take On Guizhou Guihang Automotive ComponentsLtd's Profit Performance

We'd posit that Guizhou Guihang Automotive ComponentsLtd's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Because of this, we think that it may be that Guizhou Guihang Automotive ComponentsLtd's statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 16% 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. 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. At Simply Wall St, we found 1 warning sign for Guizhou Guihang Automotive ComponentsLtd and we think they deserve your attention.

Today we've zoomed in on a single data point to better understand the nature of Guizhou Guihang Automotive ComponentsLtd'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.