Jiangxi First Hydraulic's (SZSE:301446) Weak Earnings May Only Reveal A Part Of The Whole Picture

Jiangxi First Hydraulic Co., Ltd.'s (SZSE:301446) stock showed strength, with investors undeterred by its weak earnings report. Sometimes, shareholders are willing to ignore soft numbers with the hope that they will improve, but our analysis suggests this is unlikely for Jiangxi First Hydraulic.

View our latest analysis for Jiangxi First Hydraulic

How Do Unusual Items Influence Profit?

For anyone who wants to understand Jiangxi First Hydraulic's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥15m 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. And, after all, that's exactly what the accounting terminology implies. If Jiangxi First Hydraulic 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 Jiangxi First Hydraulic.

Our Take On Jiangxi First Hydraulic's Profit Performance

We'd posit that Jiangxi First Hydraulic'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 Jiangxi First Hydraulic'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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. At Simply Wall St, we found 4 warning signs for Jiangxi First Hydraulic and we think they deserve your attention.

This note has only looked at a single factor that sheds light on the nature of Jiangxi First Hydraulic'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. 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.