Aecc Aero-Engine ControlLtd's (SZSE:000738) Solid Earnings May Rest On Weak Foundations

The recent earnings posted by Aecc Aero-Engine Control Co.,Ltd. (SZSE:000738) were solid, but the stock didn't move as much as we expected. We think this is due to investors looking beyond the statutory profits and being concerned with what they see.

View our latest analysis for Aecc Aero-Engine ControlLtd

How Do Unusual Items Influence Profit?

To properly understand Aecc Aero-Engine ControlLtd's profit results, we need to consider the CN¥53m gain attributed to unusual items. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And, after all, that's exactly what the accounting terminology implies. If Aecc Aero-Engine ControlLtd 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 Aecc Aero-Engine ControlLtd's Profit Performance

Arguably, Aecc Aero-Engine ControlLtd's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Aecc Aero-Engine ControlLtd's true underlying earnings power is actually less than its statutory profit. Nonetheless, it's still worth noting that its earnings per share have grown at 52% over the last three years. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. So while earnings quality is important, it's equally important to consider the risks facing Aecc Aero-Engine ControlLtd at this point in time. For example - Aecc Aero-Engine ControlLtd has 1 warning sign we think you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Aecc Aero-Engine ControlLtd'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.