Shijiazhuang Kelin Electric's (SHSE:603050) Earnings Are Of Questionable Quality

Despite posting some strong earnings, the market for Shijiazhuang Kelin Electric Co., Ltd.'s (SHSE:603050) stock hasn't moved much. Our analysis suggests that shareholders have noticed something concerning in the numbers.

See our latest analysis for Shijiazhuang Kelin Electric

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Shijiazhuang Kelin Electric's profit received a boost of CN¥33m 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 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. 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 Shijiazhuang Kelin Electric.

Our Take On Shijiazhuang Kelin Electric's Profit Performance

We'd posit that Shijiazhuang Kelin Electric's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Therefore, it seems possible to us that Shijiazhuang Kelin Electric's true underlying earnings power is actually less than its statutory profit. But on the bright side, its earnings per share have grown at an extremely impressive rate over the last three years. 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 Shijiazhuang Kelin Electric at this point in time. In terms of investment risks, we've identified 1 warning sign with Shijiazhuang Kelin Electric, and understanding it should be part of your investment process.

This note has only looked at a single factor that sheds light on the nature of Shijiazhuang Kelin Electric'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. 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.