Wuxi Double Elephant Micro Fibre MaterialLtd's (SZSE:002395) Solid Profits Have Weak Fundamentals

Wuxi Double Elephant Micro Fibre Material Co.,Ltd (SZSE:002395) just reported some strong earnings, and the market reacted accordingly with a healthy uplift in the share price. We did some analysis and think that investors are missing some details hidden beneath the profit numbers.

Check out our latest analysis for Wuxi Double Elephant Micro Fibre MaterialLtd

The Impact Of Unusual Items On Profit

To properly understand Wuxi Double Elephant Micro Fibre MaterialLtd's profit results, we need to consider the CN¥11m gain attributed to unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. 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, after all, that's exactly what the accounting terminology implies. 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 Wuxi Double Elephant Micro Fibre MaterialLtd.

Our Take On Wuxi Double Elephant Micro Fibre MaterialLtd's Profit Performance

We'd posit that Wuxi Double Elephant Micro Fibre MaterialLtd's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Therefore, it seems possible to us that Wuxi Double Elephant Micro Fibre MaterialLtd's true underlying earnings power is actually less than its statutory profit. The good news is that it earned a profit in the last twelve months, despite its previous loss. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. If you'd like to know more about Wuxi Double Elephant Micro Fibre MaterialLtd as a business, it's important to be aware of any risks it's facing. For example, Wuxi Double Elephant Micro Fibre MaterialLtd has 2 warning signs (and 1 which is potentially serious) we think you should know about.

This note has only looked at a single factor that sheds light on the nature of Wuxi Double Elephant Micro Fibre MaterialLtd'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. 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.