Additional Considerations Required While Assessing Cre8 Direct (NingBo)'s (SZSE:300703) Strong Earnings

Despite posting some strong earnings, the market for Cre8 Direct (NingBo) Co., Ltd.'s (SZSE:300703) stock hasn't moved much. Our analysis suggests that this might be because shareholders have noticed some concerning underlying factors.

Check out our latest analysis for Cre8 Direct (NingBo)

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Cre8 Direct (NingBo)'s profit received a boost of CN¥8.3m 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 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, 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 Cre8 Direct (NingBo).

Our Take On Cre8 Direct (NingBo)'s Profit Performance

Arguably, Cre8 Direct (NingBo)'s statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Cre8 Direct (NingBo)'s statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 39% per annum growth in EPS for the last three. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. For instance, we've identified 2 warning signs for Cre8 Direct (NingBo) (1 doesn't sit too well with us) you should be familiar with.

This note has only looked at a single factor that sheds light on the nature of Cre8 Direct (NingBo)'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 that insiders are buying.

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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.