Earnings Troubles May Signal Larger Issues for FSPG Hi-Tech (SZSE:000973) Shareholders

The market rallied behind FSPG Hi-Tech CO., Ltd.'s (SZSE:000973) stock, leading do a rise in the share price after its recent weak earnings report. While shareholders may be willing to overlook soft profit numbers, we believe that they should also be taking into account some other factors which may be cause for concern.

Check out our latest analysis for FSPG Hi-Tech

The Impact Of Unusual Items On Profit

For anyone who wants to understand FSPG Hi-Tech's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥34m 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. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And that's as you'd expect, given these boosts are described as 'unusual'. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of FSPG Hi-Tech.

Our Take On FSPG Hi-Tech's Profit Performance

Arguably, FSPG Hi-Tech's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that FSPG Hi-Tech's statutory profits are better than its underlying earnings power. Sadly, its EPS was down over the last twelve months. 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. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. At Simply Wall St, we found 3 warning signs for FSPG Hi-Tech and we think they deserve your attention.

Today we've zoomed in on a single data point to better understand the nature of FSPG Hi-Tech'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. 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.