Why Guangdong Feinan Resources Recycling's (SZSE:301500) Earnings Are Better Than They Seem

Despite posting healthy earnings, Guangdong Feinan Resources Recycling Co., Ltd's (SZSE:301500 ) stock has been quite weak. We have done some analysis, and found some encouraging factors that we believe the shareholders should consider.

See our latest analysis for Guangdong Feinan Resources Recycling

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Guangdong Feinan Resources Recycling's profit was reduced by CN¥104m, due to unusual items, over the last year. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And that's hardly a surprise given these line items are considered unusual. If Guangdong Feinan Resources Recycling doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Guangdong Feinan Resources Recycling.

Our Take On Guangdong Feinan Resources Recycling's Profit Performance

Unusual items (expenses) detracted from Guangdong Feinan Resources Recycling's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Guangdong Feinan Resources Recycling's statutory profit actually understates its earnings potential! Unfortunately, though, its earnings per share actually fell back over 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 Guangdong Feinan Resources Recycling at this point in time. Be aware that Guangdong Feinan Resources Recycling is showing 3 warning signs in our investment analysis and 2 of those can't be ignored...

This note has only looked at a single factor that sheds light on the nature of Guangdong Feinan Resources Recycling'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. 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.