Investors Shouldn't Be Too Comfortable With Lizhong Sitong Light Alloys Group's (SZSE:300428) Earnings

Lizhong Sitong Light Alloys Group Co., Ltd. (SZSE:300428) just reported some strong earnings, and the market reacted accordingly with a healthy uplift in the share price. However, our analysis suggests that shareholders may be missing some factors that indicate the earnings result was not as good as it looked.

View our latest analysis for Lizhong Sitong Light Alloys Group

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Lizhong Sitong Light Alloys Group's profit received a boost of CN¥92m in unusual items, over the last year. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. Which is hardly surprising, given the name. If Lizhong Sitong Light Alloys Group doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

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 Lizhong Sitong Light Alloys Group's Profit Performance

Arguably, Lizhong Sitong Light Alloys Group's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Lizhong Sitong Light Alloys Group's statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 32% per annum growth in EPS for the last three. 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. To help with this, we've discovered 2 warning signs (1 is significant!) that you ought to be aware of before buying any shares in Lizhong Sitong Light Alloys Group.

This note has only looked at a single factor that sheds light on the nature of Lizhong Sitong Light Alloys Group'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 with high insider ownership.

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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.