We Think That There Are More Issues For Wuxi Honghui New Materials Technology (SZSE:002802) Than Just Sluggish Earnings

Wuxi Honghui New Materials Technology Co., Ltd.'s (SZSE:002802) stock showed strength, with investors undeterred by its weak earnings report. Sometimes, shareholders are willing to ignore soft numbers with the hope that they will improve, but our analysis suggests this is unlikely for Wuxi Honghui New Materials Technology.

See our latest analysis for Wuxi Honghui New Materials Technology

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Wuxi Honghui New Materials Technology's profit received a boost of CN¥6.9m 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).

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Wuxi Honghui New Materials Technology.

Our Take On Wuxi Honghui New Materials Technology's Profit Performance

We'd posit that Wuxi Honghui New Materials Technology's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Because of this, we think that it may be that Wuxi Honghui New Materials Technology's statutory profits are better than its underlying earnings power. Sadly, its EPS was down over the last twelve months. 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. If you'd like to know more about Wuxi Honghui New Materials Technology as a business, it's important to be aware of any risks it's facing. To help with this, we've discovered 2 warning signs (1 is a bit concerning!) that you ought to be aware of before buying any shares in Wuxi Honghui New Materials Technology.

Today we've zoomed in on a single data point to better understand the nature of Wuxi Honghui New Materials Technology'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 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.