ValiantLtd's (SZSE:002643) Shareholders Have More To Worry About Than Only Soft Earnings

The market wasn't impressed with the soft earnings from Valiant Co.,Ltd (SZSE:002643) recently. We did some analysis, and found that there are some reasons to be cautious about the headline numbers.

Check out our latest analysis for ValiantLtd

The Impact Of Unusual Items On Profit

Importantly, our data indicates that ValiantLtd's profit received a boost of CN¥90m 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. 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).

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 ValiantLtd's Profit Performance

Arguably, ValiantLtd's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that ValiantLtd's true underlying earnings power is actually less than its statutory profit. In further bad news, its earnings per share decreased 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. 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 ValiantLtd and we think they deserve your attention.

This note has only looked at a single factor that sheds light on the nature of ValiantLtd'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 with significant insider holdings 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.