Investors Shouldn't Be Too Comfortable With Shanghai Jinjiang International Travel's (SHSE:900929) Earnings

Despite announcing strong earnings, Shanghai Jinjiang International Travel Co., Ltd.'s (SHSE:900929) stock was sluggish. We did some digging and found some worrying underlying problems.

Check out our latest analysis for Shanghai Jinjiang International Travel

How Do Unusual Items Influence Profit?

To properly understand Shanghai Jinjiang International Travel's profit results, we need to consider the CN¥4.2m gain attributed to unusual items. 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 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'. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Shanghai Jinjiang International Travel.

Our Take On Shanghai Jinjiang International Travel's Profit Performance

We'd posit that Shanghai Jinjiang International Travel's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Because of this, we think that it may be that Shanghai Jinjiang International Travel's statutory profits are better than its underlying earnings power. 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 Shanghai Jinjiang International Travel, you'd also look into what risks it is currently facing. When we did our research, we found 3 warning signs for Shanghai Jinjiang International Travel (1 is a bit unpleasant!) that we believe deserve your full attention.

Today we've zoomed in on a single data point to better understand the nature of Shanghai Jinjiang International Travel'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.