Baoji Titanium Industry's (SHSE:600456) Sluggish Earnings Might Be Just The Beginning Of Its Problems

A lackluster earnings announcement from Baoji Titanium Industry Co., Ltd. (SHSE:600456) last week didn't sink the stock price. However, we believe that investors should be aware of some underlying factors which may be of concern.

See our latest analysis for Baoji Titanium Industry

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Baoji Titanium Industry's profit received a boost of CN¥80m 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, after all, that's exactly what the accounting terminology implies. If Baoji Titanium Industry doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

Our Take On Baoji Titanium Industry's Profit Performance

Arguably, Baoji Titanium Industry's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Baoji Titanium Industry's true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 35% per annum growth in EPS for the last three. 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. While conducting our analysis, we found that Baoji Titanium Industry has 1 warning sign and it would be unwise to ignore this.

This note has only looked at a single factor that sheds light on the nature of Baoji Titanium Industry'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 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.