Yunnan Energy New Material's (SZSE:002812) Anemic Earnings Might Be Worse Than You Think

A lackluster earnings announcement from Yunnan Energy New Material Co., Ltd. (SZSE:002812) last week didn't sink the stock price. Our analysis suggests that along with soft profit numbers, investors should be aware of some other underlying weaknesses in the numbers.

See our latest analysis for Yunnan Energy New Material

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Yunnan Energy New Material's profit received a boost of CN¥80m in unusual items, over the last year. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. And that's as you'd expect, given these boosts are described as 'unusual'. 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 Yunnan Energy New Material's Profit Performance

Arguably, Yunnan Energy New Material's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Yunnan Energy New Material's true underlying earnings power is actually less than its statutory profit. Sadly, its EPS was down over the last twelve months. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. If you'd like to know more about Yunnan Energy New Material as a business, it's important to be aware of any risks it's facing. To that end, you should learn about the 2 warning signs we've spotted with Yunnan Energy New Material (including 1 which makes us a bit uncomfortable).

This note has only looked at a single factor that sheds light on the nature of Yunnan Energy New Material'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.