Jiangsu Riying ElectronicsLtd's (SHSE:603286) Promising Earnings May Rest On Soft Foundations

Investors were disappointed with Jiangsu Riying Electronics Co.,Ltd.'s (SHSE:603286) earnings, despite the strong profit numbers. We think that the market might be paying attention to some underlying factors that they find to be concerning.

See our latest analysis for Jiangsu Riying ElectronicsLtd

The Impact Of Unusual Items On Profit

To properly understand Jiangsu Riying ElectronicsLtd's profit results, we need to consider the CN¥4.2m 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 Jiangsu Riying ElectronicsLtd 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 Jiangsu Riying ElectronicsLtd.

Our Take On Jiangsu Riying ElectronicsLtd's Profit Performance

Arguably, Jiangsu Riying ElectronicsLtd's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Jiangsu Riying ElectronicsLtd's statutory profits are better than its underlying earnings power. On the bright side, the company showed enough improvement to book a profit this year, after losing money 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. Every company has risks, and we've spotted 3 warning signs for Jiangsu Riying ElectronicsLtd (of which 1 is a bit unpleasant!) you should know about.

Today we've zoomed in on a single data point to better understand the nature of Jiangsu Riying ElectronicsLtd'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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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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.