Shanghai Baolong Automotive's (SHSE:603197) Shareholders May Want To Dig Deeper Than Statutory Profit

Shanghai Baolong Automotive Corporation (SHSE:603197) just released a solid earnings report, and the stock displayed some strength. While the profit numbers were good, our analysis has found some concerning factors that shareholders should be aware of.

View our latest analysis for Shanghai Baolong Automotive

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Shanghai Baolong Automotive's profit received a boost of CN¥40m in unusual items, over the last year. 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 analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. Which is hardly surprising, given the name. If Shanghai Baolong Automotive 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 Shanghai Baolong Automotive's Profit Performance

Arguably, Shanghai Baolong Automotive's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Shanghai Baolong Automotive's true underlying earnings power is actually less than its statutory profit. Nonetheless, it's still worth noting that its earnings per share have grown at 17% over the last three years. 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 Shanghai Baolong Automotive at this point in time. For instance, we've identified 2 warning signs for Shanghai Baolong Automotive (1 can't be ignored) you should be familiar with.

Today we've zoomed in on a single data point to better understand the nature of Shanghai Baolong Automotive'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.