Ningbo Henghe Precision IndustryLtd's (SZSE:300539) Sluggish Earnings Might Be Just The Beginning Of Its Problems

Despite Ningbo Henghe Precision Industry Co.,Ltd.'s (SZSE:300539) recent earnings report having lackluster headline numbers, the market responded positively. Sometimes, shareholders are willing to ignore soft numbers with the hope that they will improve, but our analysis suggests this is unlikely for Ningbo Henghe Precision IndustryLtd.

Check out our latest analysis for Ningbo Henghe Precision IndustryLtd

The Impact Of Unusual Items On Profit

For anyone who wants to understand Ningbo Henghe Precision IndustryLtd's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥3.8m worth of unusual items. 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. Which is hardly surprising, given the name. If Ningbo Henghe Precision IndustryLtd doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Ningbo Henghe Precision IndustryLtd.

Our Take On Ningbo Henghe Precision IndustryLtd's Profit Performance

Arguably, Ningbo Henghe Precision IndustryLtd's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Ningbo Henghe Precision IndustryLtd's statutory profits are better than its underlying earnings power. Nonetheless, it's still worth noting that its earnings per share have grown at 28% over the last three years. 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. For example - Ningbo Henghe Precision IndustryLtd has 3 warning signs we think you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Ningbo Henghe Precision IndustryLtd'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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.