Weak Statutory Earnings May Not Tell The Whole Story For Zhejiang JW Precision MachineryLtd (SZSE:300984)

A lackluster earnings announcement from Zhejiang JW Precision Machinery Co.,Ltd (SZSE:300984) last week didn't sink the stock price. However, we believe that investors should be aware of some underlying factors which may be of concern.

Check out our latest analysis for Zhejiang JW Precision MachineryLtd

The Impact Of Unusual Items On Profit

To properly understand Zhejiang JW Precision MachineryLtd's profit results, we need to consider the CN¥9.7m 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. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. Which is hardly surprising, given the name. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Zhejiang JW Precision MachineryLtd.

Our Take On Zhejiang JW Precision MachineryLtd's Profit Performance

Arguably, Zhejiang JW Precision MachineryLtd's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Zhejiang JW Precision MachineryLtd's statutory profits are better than its underlying earnings power. In further bad news, its earnings per share decreased in 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. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. Our analysis shows 4 warning signs for Zhejiang JW Precision MachineryLtd (1 is potentially serious!) and we strongly recommend you look at them before investing.

Today we've zoomed in on a single data point to better understand the nature of Zhejiang JW Precision MachineryLtd'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 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.