Neway CNC Equipment (Suzhou)'s (SHSE:688697) Solid Earnings May Rest On Weak Foundations

The recent earnings posted by Neway CNC Equipment (Suzhou) Co., Ltd. (SHSE:688697) were solid, but the stock didn't move as much as we expected. We believe that shareholders have noticed some concerning factors beyond the statutory profit numbers.

See our latest analysis for Neway CNC Equipment (Suzhou)

The Impact Of Unusual Items On Profit

To properly understand Neway CNC Equipment (Suzhou)'s profit results, we need to consider the CN¥28m gain attributed to 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 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. If Neway CNC Equipment (Suzhou) doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

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 Neway CNC Equipment (Suzhou)'s Profit Performance

We'd posit that Neway CNC Equipment (Suzhou)'s statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Therefore, it seems possible to us that Neway CNC Equipment (Suzhou)'s true underlying earnings power is actually less than its statutory profit. But the good news is that its EPS growth over the last three years has been very impressive. 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. So while earnings quality is important, it's equally important to consider the risks facing Neway CNC Equipment (Suzhou) at this point in time. At Simply Wall St, we found 2 warning signs for Neway CNC Equipment (Suzhou) and we think they deserve your attention.

This note has only looked at a single factor that sheds light on the nature of Neway CNC Equipment (Suzhou)'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 that insiders are buying 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.