We Think That There Are Issues Underlying XCMG Construction Machinery's (SZSE:000425) Earnings

Despite posting some strong earnings, the market for XCMG Construction Machinery Co., Ltd.'s (SZSE:000425) stock hasn't moved much. We did some digging, and we found some concerning factors in the details.

View our latest analysis for XCMG Construction Machinery

The Impact Of Unusual Items On Profit

Importantly, our data indicates that XCMG Construction Machinery's profit received a boost of CN¥846m 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. And that's as you'd expect, given these boosts are described as 'unusual'. If XCMG Construction Machinery 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 XCMG Construction Machinery's Profit Performance

Arguably, XCMG Construction Machinery's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that XCMG Construction Machinery's true underlying earnings power is actually less than its statutory profit. The good news is that, its earnings per share increased by 45% 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. While conducting our analysis, we found that XCMG Construction Machinery has 1 warning sign and it would be unwise to ignore it.

This note has only looked at a single factor that sheds light on the nature of XCMG Construction Machinery'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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

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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.