NCS Testing Technology's (SZSE:300797) Profits May Not Reveal Underlying Issues

The recent earnings posted by NCS Testing Technology Co., Ltd. (SZSE:300797) were solid, but the stock didn't move as much as we expected. However the statutory profit number doesn't tell the whole story, and we have found some factors which might be of concern to shareholders.

See our latest analysis for NCS Testing Technology

How Do Unusual Items Influence Profit?

Importantly, our data indicates that NCS Testing Technology's profit received a boost of CN¥26m in unusual items, over the last year. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. Which is hardly surprising, given the name. We can see that NCS Testing Technology's positive unusual items were quite significant relative to its profit in the year to September 2024. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of NCS Testing Technology.

Our Take On NCS Testing Technology's Profit Performance

As previously mentioned, NCS Testing Technology's large boost from unusual items won't be there indefinitely, so its statutory earnings are probably a poor guide to its underlying profitability. As a result, we think it may well be the case that NCS Testing Technology's underlying earnings power is lower than its statutory profit. But at least holders can take some solace from the 23% per annum growth in EPS for the last three. 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 NCS Testing Technology at this point in time. Every company has risks, and we've spotted 3 warning signs for NCS Testing Technology you should know about.

Today we've zoomed in on a single data point to better understand the nature of NCS Testing Technology'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. 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.