We Think That There Are More Issues For Kunming Chuan Jin Nuo Chemical (SZSE:300505) Than Just Sluggish Earnings

Kunming Chuan Jin Nuo Chemical Co., Ltd.'s (SZSE:300505) recent weak earnings report didn't cause a big stock movement. However, we believe that investors should be aware of some underlying factors which may be of concern.

View our latest analysis for Kunming Chuan Jin Nuo Chemical

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Kunming Chuan Jin Nuo Chemical's profit received a boost of CN¥12m in unusual items, over the last year. 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 analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's as you'd expect, given these boosts are described as 'unusual'. We can see that Kunming Chuan Jin Nuo Chemical'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 Kunming Chuan Jin Nuo Chemical.

Our Take On Kunming Chuan Jin Nuo Chemical's Profit Performance

As we discussed above, we think the significant positive unusual item makes Kunming Chuan Jin Nuo Chemical's earnings a poor guide to its underlying profitability. For this reason, we think that Kunming Chuan Jin Nuo Chemical's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. Sadly, its EPS was down over the last twelve months. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. For example, we've discovered 3 warning signs that you should run your eye over to get a better picture of Kunming Chuan Jin Nuo Chemical.

This note has only looked at a single factor that sheds light on the nature of Kunming Chuan Jin Nuo Chemical'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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.