We Think That There Are Some Issues For China Hi-Tech Group (SHSE:600730) Beyond Its Promising Earnings

Following the solid earnings report from China Hi-Tech Group Co., Ltd. (SHSE:600730), the market responded by bidding up the stock price. Despite this, our analysis suggests that there are some factors weakening the foundations of those good profit numbers.

Check out our latest analysis for China Hi-Tech Group

How Do Unusual Items Influence Profit?

For anyone who wants to understand China Hi-Tech Group's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥8.5m worth of unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. 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. We can see that China Hi-Tech Group's positive unusual items were quite significant relative to its profit in the year 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 China Hi-Tech Group.

Our Take On China Hi-Tech Group's Profit Performance

As we discussed above, we think the significant positive unusual item makes China Hi-Tech Group's earnings a poor guide to its underlying profitability. As a result, we think it may well be the case that China Hi-Tech Group's underlying earnings power is lower than its statutory profit. On the bright side, the company showed enough improvement to book a profit this year, after losing money last year. 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. If you want to do dive deeper into China Hi-Tech Group, you'd also look into what risks it is currently facing. In terms of investment risks, we've identified 1 warning sign with China Hi-Tech Group, and understanding it should be part of your investment process.

This note has only looked at a single factor that sheds light on the nature of China Hi-Tech Group'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.