We Think That There Are More Issues For Zhejiang Wanma (SZSE:002276) Than Just Sluggish Earnings

Zhejiang Wanma Co., Ltd.'s (SZSE:002276) stock showed strength, with investors undeterred by its weak earnings report. While shareholders may be willing to overlook soft profit numbers, we believe that they should also be taking into account some other factors which may be cause for concern.

See our latest analysis for Zhejiang Wanma

The Impact Of Unusual Items On Profit

For anyone who wants to understand Zhejiang Wanma's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥48m worth of 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. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. Which is hardly surprising, given the name. If Zhejiang Wanma 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 Zhejiang Wanma's Profit Performance

Arguably, Zhejiang Wanma's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Zhejiang Wanma's true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 42% per annum growth in EPS for the last three. 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 Zhejiang Wanma at this point in time. At Simply Wall St, we found 2 warning signs for Zhejiang Wanma and we think they deserve your attention.

This note has only looked at a single factor that sheds light on the nature of Zhejiang Wanma'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.