Solid Earnings May Not Tell The Whole Story For China Automotive Engineering Research Institute (SHSE:601965)

The market for China Automotive Engineering Research Institute Co., Ltd.'s (SHSE:601965) stock was strong after it released a healthy earnings report last week. While the profit numbers were good, our analysis has found some concerning factors that shareholders should be aware of.

Check out our latest analysis for China Automotive Engineering Research Institute

How Do Unusual Items Influence Profit?

To properly understand China Automotive Engineering Research Institute's profit results, we need to consider the CN¥68m gain attributed to 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. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. Which is hardly surprising, given the name. If China Automotive Engineering Research Institute 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 China Automotive Engineering Research Institute's Profit Performance

Arguably, China Automotive Engineering Research Institute's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that China Automotive Engineering Research Institute's statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 40% 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. If you want to do dive deeper into China Automotive Engineering Research Institute, you'd also look into what risks it is currently facing. You'd be interested to know, that we found 1 warning sign for China Automotive Engineering Research Institute and you'll want to know about this.

Today we've zoomed in on a single data point to better understand the nature of China Automotive Engineering Research Institute'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 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.