CITIC Metal's (SHSE:601061) Problems Go Beyond Weak Profit

The subdued market reaction suggests that CITIC Metal Co., Ltd's (SHSE:601061) recent earnings didn't contain any surprises. We think that investors are worried about some weaknesses underlying the earnings.

Check out our latest analysis for CITIC Metal

How Do Unusual Items Influence Profit?

For anyone who wants to understand CITIC Metal's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥451m 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. 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. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of CITIC Metal.

Our Take On CITIC Metal's Profit Performance

Arguably, CITIC Metal's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that CITIC Metal's statutory profits are better than its underlying earnings power. Nonetheless, it's still worth noting that its earnings per share have grown at 65% 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. To help with this, we've discovered 3 warning signs (1 is a bit unpleasant!) that you ought to be aware of before buying any shares in CITIC Metal.

This note has only looked at a single factor that sheds light on the nature of CITIC Metal's profit. But there are plenty of other ways to inform your opinion of a company. 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 that insiders are buying.

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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.