We Think That There Are Issues Underlying Xuelong GroupLtd's (SHSE:603949) Earnings

Despite announcing strong earnings, Xuelong Group Co.,Ltd's (SHSE:603949) stock was sluggish. Our analysis uncovered some concerning factors that we believe the market might be paying attention to.

View our latest analysis for Xuelong GroupLtd

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Xuelong GroupLtd's profit received a boost of CN¥7.8m in unusual items, over the last year. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. 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. And, after all, that's exactly what the accounting terminology implies. If Xuelong GroupLtd 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 Xuelong GroupLtd.

Our Take On Xuelong GroupLtd's Profit Performance

Arguably, Xuelong GroupLtd's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Xuelong GroupLtd's true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 65% EPS growth in the last year. 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 Xuelong GroupLtd at this point in time. In terms of investment risks, we've identified 2 warning signs with Xuelong GroupLtd, and understanding these should be part of your investment process.

This note has only looked at a single factor that sheds light on the nature of Xuelong GroupLtd'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 that insiders are buying 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.