Zhejiang Construction Investment GroupLtd's (SZSE:002761) Shareholders Have More To Worry About Than Only Soft Earnings

A lackluster earnings announcement from Zhejiang Construction Investment Group Co.,Ltd (SZSE:002761) last week didn't sink the stock price. We think that investors are worried about some weaknesses underlying the earnings.

Check out our latest analysis for Zhejiang Construction Investment GroupLtd

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Zhejiang Construction Investment GroupLtd's profit received a boost of CN¥147m in unusual items, over the last year. 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. We can see that Zhejiang Construction Investment GroupLtd's positive unusual items were quite significant relative to its profit in the year to June 2024. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Zhejiang Construction Investment GroupLtd.

Our Take On Zhejiang Construction Investment GroupLtd's Profit Performance

As we discussed above, we think the significant positive unusual item makes Zhejiang Construction Investment GroupLtd's earnings a poor guide to its underlying profitability. As a result, we think it may well be the case that Zhejiang Construction Investment GroupLtd's underlying earnings power is lower than its statutory profit. Sadly, its EPS was down over the last twelve months. 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. So while earnings quality is important, it's equally important to consider the risks facing Zhejiang Construction Investment GroupLtd at this point in time. Be aware that Zhejiang Construction Investment GroupLtd is showing 4 warning signs in our investment analysis and 2 of those are a bit concerning...

This note has only looked at a single factor that sheds light on the nature of Zhejiang Construction Investment GroupLtd'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. 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 with significant insider holdings 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.