CSD Water Service's (SHSE:603903) Weak Earnings May Only Reveal A Part Of The Whole Picture

The subdued market reaction suggests that CSD Water Service Co., Ltd.'s (SHSE:603903) recent earnings didn't contain any surprises. However, we believe that investors should be aware of some underlying factors which may be of concern.

Check out our latest analysis for CSD Water Service

How Do Unusual Items Influence Profit?

For anyone who wants to understand CSD Water Service's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥24m 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 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. If CSD Water Service 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 CSD Water Service.

Our Take On CSD Water Service's Profit Performance

Arguably, CSD Water Service's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that CSD Water Service's statutory profits are better than its underlying earnings power. In further bad news, its earnings per share decreased in the last year. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. So while earnings quality is important, it's equally important to consider the risks facing CSD Water Service at this point in time. When we did our research, we found 2 warning signs for CSD Water Service (1 is a bit concerning!) that we believe deserve your full attention.

This note has only looked at a single factor that sheds light on the nature of CSD Water Service'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 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.