Zhiyang Innovation Technology's (SHSE:688191) Solid Profits Have Weak Fundamentals

Despite posting some strong earnings, the market for Zhiyang Innovation Technology Co., Ltd.'s (SHSE:688191) stock hasn't moved much. Our analysis suggests that this might be because shareholders have noticed some concerning underlying factors.

View our latest analysis for Zhiyang Innovation Technology

How Do Unusual Items Influence Profit?

For anyone who wants to understand Zhiyang Innovation Technology's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥7.4m 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. 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 that's as you'd expect, given these boosts are described as 'unusual'. 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).

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

Our Take On Zhiyang Innovation Technology's Profit Performance

Arguably, Zhiyang Innovation Technology's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Zhiyang Innovation Technology's statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 30% 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. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. Case in point: We've spotted 1 warning sign for Zhiyang Innovation Technology you should be aware of.

This note has only looked at a single factor that sheds light on the nature of Zhiyang Innovation Technology'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 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.