Statutory Profit Doesn't Reflect How Good Nanjing Hanrui CobaltLtd's (SZSE:300618) Earnings Are

The subdued stock price reaction suggests that Nanjing Hanrui Cobalt Co.,Ltd.'s (SZSE:300618) strong earnings didn't offer any surprises. Investors are probably missing some underlying factors which are encouraging for the future of the company.

See our latest analysis for Nanjing Hanrui CobaltLtd

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Nanjing Hanrui CobaltLtd's profit was reduced by CN¥55m, due to unusual items, over the last year. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And that's hardly a surprise given these line items are considered unusual. Assuming those unusual expenses don't come up again, we'd therefore expect Nanjing Hanrui CobaltLtd to produce a higher profit next year, all else being equal.

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 Nanjing Hanrui CobaltLtd's Profit Performance

Because unusual items detracted from Nanjing Hanrui CobaltLtd's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Based on this observation, we consider it likely that Nanjing Hanrui CobaltLtd's statutory profit actually understates its earnings potential! And on top of that, its earnings per share have grown at an extremely impressive rate over 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. For example - Nanjing Hanrui CobaltLtd has 1 warning sign we think you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Nanjing Hanrui CobaltLtd'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.