Why Tong Petrotech's (SZSE:300164) Earnings Are Better Than They Seem

The stock was sluggish on the back of Tong Petrotech Corp.'s (SZSE:300164) recent earnings report. Along with the solid headline numbers, we think that investors have some reasons for optimism.

View our latest analysis for Tong Petrotech

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Tong Petrotech's profit was reduced by CN¥9.5m, 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. 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. If Tong Petrotech 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 Tong Petrotech.

Our Take On Tong Petrotech's Profit Performance

Unusual items (expenses) detracted from Tong Petrotech's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Tong Petrotech's statutory profit actually understates its earnings potential! 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. While conducting our analysis, we found that Tong Petrotech has 1 warning sign and it would be unwise to ignore it.

This note has only looked at a single factor that sheds light on the nature of Tong Petrotech's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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 that insiders are buying 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.