New Journey Health Technology GroupLTD's (SZSE:002219) Sluggish Earnings Might Be Just The Beginning Of Its Problems

A lackluster earnings announcement from New Journey Health Technology Group Co.,LTD (SZSE:002219) last week didn't sink the stock price. Our analysis suggests that along with soft profit numbers, investors should be aware of some other underlying weaknesses in the numbers.

View our latest analysis for New Journey Health Technology GroupLTD

The Impact Of Unusual Items On Profit

For anyone who wants to understand New Journey Health Technology GroupLTD's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CN¥20m due to unusual items. 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 New Journey Health Technology GroupLTD 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 New Journey Health Technology GroupLTD.

An Unusual Tax Situation

Just as we noted the unusual items, we must inform you that New Journey Health Technology GroupLTD received a tax benefit which contributed CN¥29m to the bottom line. This is of course a bit out of the ordinary, given it is more common for companies to be paying tax than receiving tax benefits! The receipt of a tax benefit is obviously a good thing, on its own. However, the devil in the detail is that these kind of benefits only impact in the year they are booked, and are often one-off in nature. Assuming the tax benefit is not repeated every year, we could see its profitability drop noticeably, all else being equal.

Our Take On New Journey Health Technology GroupLTD's Profit Performance

In the last year New Journey Health Technology GroupLTD received a tax benefit, which boosted its profit in a way that might not be much more sustainable than turning prime farmland into gas fields. Having said that, it also had a unusual item reducing its profit. Based on these factors, it's hard to tell if New Journey Health Technology GroupLTD's profits are a reasonable reflection of its underlying profitability. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Be aware that New Journey Health Technology GroupLTD is showing 3 warning signs in our investment analysis and 1 of those is a bit concerning...

In this article we've looked at a number of factors that can impair the utility of profit numbers, as a guide to a business. 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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

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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.