Hangzhou Advance Gearbox Group's (SHSE:601177) Problems Go Beyond Weak Profit

The market rallied behind Hangzhou Advance Gearbox Group Co., Ltd.'s (SHSE:601177) stock, leading do a rise in the share price after its recent weak earnings report. We think that shareholders might be missing some concerning factors that our analysis found.

View our latest analysis for Hangzhou Advance Gearbox Group

How Do Unusual Items Influence Profit?

For anyone who wants to understand Hangzhou Advance Gearbox Group's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥25m worth of unusual items. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And that's as you'd expect, given these boosts are described as 'unusual'. Hangzhou Advance Gearbox Group had a rather significant contribution from unusual items relative to its profit to September 2024. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Hangzhou Advance Gearbox Group.

Our Take On Hangzhou Advance Gearbox Group's Profit Performance

As we discussed above, we think the significant positive unusual item makes Hangzhou Advance Gearbox Group's earnings a poor guide to its underlying profitability. For this reason, we think that Hangzhou Advance Gearbox Group's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. But at least holders can take some solace from the 54% 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. While earnings are important, another area to consider is the balance sheet. We've done some analysis and you can see our take on Hangzhou Advance Gearbox Group's balance sheet by clicking here.

This note has only looked at a single factor that sheds light on the nature of Hangzhou Advance Gearbox Group's profit. But there are plenty of other ways to inform your opinion of a company. 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.