We Think Chengzhi's (SZSE:000990) Solid Earnings Are Understated

Investors signalled that they were pleased with Chengzhi Co., Ltd.'s (SZSE:000990) most recent earnings report. Looking deeper at the numbers, we found several encouraging factors beyond the headline profit numbers.

See our latest analysis for Chengzhi

How Do Unusual Items Influence Profit?

To properly understand Chengzhi's profit results, we need to consider the CN¥199m expense attributed to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And that's hardly a surprise given these line items are considered unusual. If Chengzhi doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming 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 Chengzhi's Profit Performance

Because unusual items detracted from Chengzhi's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Because of this, we think Chengzhi's earnings potential is at least as good as it seems, and maybe even better! And it's also positive that the company showed enough improvement to book a profit this year, after losing money last year. 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. 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 1 warning sign for Chengzhi and we think they deserve your attention.

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