Huitong Construction GroupLtd's (SHSE:603176) Strong Earnings Are Of Good Quality

Huitong Construction Group Co.,Ltd. (SHSE:603176) just reported healthy earnings but the stock price didn't move much. We think that investors have missed some encouraging factors underlying the profit figures.

View our latest analysis for Huitong Construction GroupLtd

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Huitong Construction GroupLtd's profit was reduced by CN¥73m, due to unusual items, over the last year. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect Huitong Construction GroupLtd to produce a higher profit next year, all else being equal.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Huitong Construction GroupLtd.

Our Take On Huitong Construction GroupLtd's Profit Performance

Unusual items (expenses) detracted from Huitong Construction GroupLtd's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Huitong Construction GroupLtd's statutory profit actually understates its earnings potential! And on top of that, its earnings per share have grown at an extremely impressive rate over 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. 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 Huitong Construction GroupLtd (of which 2 make us uncomfortable!) you should know about.

Today we've zoomed in on a single data point to better understand the nature of Huitong Construction 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. 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.