Why Qingdao Greensum Ecology's (SZSE:300948) Shaky Earnings Are Just The Beginning Of Its Problems

A lackluster earnings announcement from Qingdao Greensum Ecology Co., Ltd. (SZSE:300948) last week didn't sink the stock price. Our analysis suggests that along with soft profit numbers, investors should be aware of some other underlying weaknesses in the numbers.

View our latest analysis for Qingdao Greensum Ecology

How Do Unusual Items Influence Profit?

For anyone who wants to understand Qingdao Greensum Ecology's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥7.3m 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. And that's as you'd expect, given these boosts are described as 'unusual'. Qingdao Greensum Ecology had a rather significant contribution from unusual items relative to its profit to June 2024. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Qingdao Greensum Ecology.

Our Take On Qingdao Greensum Ecology's Profit Performance

As previously mentioned, Qingdao Greensum Ecology's large boost from unusual items won't be there indefinitely, so its statutory earnings are probably a poor guide to its underlying profitability. For this reason, we think that Qingdao Greensum Ecology's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. Sadly, its EPS was down over the last twelve months. 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. So while earnings quality is important, it's equally important to consider the risks facing Qingdao Greensum Ecology at this point in time. To that end, you should learn about the 3 warning signs we've spotted with Qingdao Greensum Ecology (including 1 which is significant).

Today we've zoomed in on a single data point to better understand the nature of Qingdao Greensum Ecology'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 with high insider ownership.

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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.