Why Longxing Chemical Stock's (SZSE:002442) Earnings Are Better Than They Seem

Longxing Chemical Stock Co., Ltd.'s (SZSE:002442) solid earnings announcement recently didn't do much to the stock price. Our analysis suggests that shareholders might be missing some positive underlying factors in the earnings report.

Check out our latest analysis for Longxing Chemical Stock

The Impact Of Unusual Items On Profit

For anyone who wants to understand Longxing Chemical Stock's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CN¥24m 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. 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 Longxing Chemical Stock 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 Longxing Chemical Stock.

Our Take On Longxing Chemical Stock's Profit Performance

Because unusual items detracted from Longxing Chemical Stock's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Based on this observation, we consider it likely that Longxing Chemical Stock's statutory profit actually understates its earnings potential! And on top of that, its earnings per share increased by 18% in the 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. For example, we've discovered 1 warning sign that you should run your eye over to get a better picture of Longxing Chemical Stock.

Today we've zoomed in on a single data point to better understand the nature of Longxing Chemical Stock'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 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.