Solid Earnings May Not Tell The Whole Story For Shanxi Guoxin Energy (SHSE:600617)

The recent earnings posted by Shanxi Guoxin Energy Corporation Limited (SHSE:600617) 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.

Check out our latest analysis for Shanxi Guoxin Energy

How Do Unusual Items Influence Profit?

For anyone who wants to understand Shanxi Guoxin Energy's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥492m 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'. Shanxi Guoxin Energy had a rather significant contribution from unusual items relative to its profit to September 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 Shanxi Guoxin Energy.

Our Take On Shanxi Guoxin Energy's Profit Performance

As we discussed above, we think the significant positive unusual item makes Shanxi Guoxin Energy's earnings a poor guide to its underlying profitability. As a result, we think it may well be the case that Shanxi Guoxin Energy's underlying earnings power is lower than its statutory profit. But the happy news is that, while acknowledging we have to look beyond the statutory numbers, those numbers are still improving, with EPS growing at a very high rate 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 Shanxi Guoxin Energy at this point in time. To help with this, we've discovered 3 warning signs (1 can't be ignored!) that you ought to be aware of before buying any shares in Shanxi Guoxin Energy.

Today we've zoomed in on a single data point to better understand the nature of Shanxi Guoxin Energy's profit. But there are plenty of other ways to inform your opinion of a company. 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.