Xiamen Jiarong TechnologyLtd's (SZSE:301148) Anemic Earnings Might Be Worse Than You Think

The market rallied behind Xiamen Jiarong Technology Corp.,Ltd.'s (SZSE:301148) stock, leading do a rise in the share price after its recent 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.

View our latest analysis for Xiamen Jiarong TechnologyLtd

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Xiamen Jiarong TechnologyLtd's profit received a boost of CN¥10m in unusual items, over the last year. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. 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 Xiamen Jiarong TechnologyLtd doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Xiamen Jiarong TechnologyLtd.

Our Take On Xiamen Jiarong TechnologyLtd's Profit Performance

We'd posit that Xiamen Jiarong TechnologyLtd's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Because of this, we think that it may be that Xiamen Jiarong TechnologyLtd's statutory profits are better than its underlying earnings power. 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. If you'd like to know more about Xiamen Jiarong TechnologyLtd as a business, it's important to be aware of any risks it's facing. Our analysis shows 5 warning signs for Xiamen Jiarong TechnologyLtd (2 are potentially serious!) and we strongly recommend you look at these before investing.

This note has only looked at a single factor that sheds light on the nature of Xiamen Jiarong TechnologyLtd's profit. But there are plenty of other ways to inform your opinion of a company. 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. 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 that insiders are buying to be useful.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.