Why Hunan Zhongke Electric's (SZSE:300035) Earnings Are Better Than They Seem

Hunan Zhongke Electric Co., Ltd. (SZSE:300035) announced a healthy earnings result recently, and the market rewarded it with a strong uplift in the stock price. Looking deeper at the numbers, we found several encouraging factors beyond the headline profit numbers.

View our latest analysis for Hunan Zhongke Electric

The Impact Of Unusual Items On Profit

For anyone who wants to understand Hunan Zhongke Electric's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CN¥100m due to unusual items. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect Hunan Zhongke Electric to produce a higher profit next year, all else being equal.

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 Hunan Zhongke Electric's Profit Performance

Unusual items (expenses) detracted from Hunan Zhongke Electric's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Hunan Zhongke Electric's statutory profit actually understates its earnings potential! Furthermore, it has done a great job growing EPS over the last year. 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 if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. In terms of investment risks, we've identified 2 warning signs with Hunan Zhongke Electric, and understanding them should be part of your investment process.

This note has only looked at a single factor that sheds light on the nature of Hunan Zhongke Electric's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. Some people consider a high return on equity to be a good sign of a quality business. 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.