Solid Earnings May Not Tell The Whole Story For Guangdong Insight Brand Marketing GroupLtd (SZSE:300781)

Following the solid earnings report from Guangdong Insight Brand Marketing Group Co.,Ltd. (SZSE:300781), the market responded by bidding up the stock price. However, we think that shareholders should be cautious as we found some worrying factors underlying the profit.

Check out our latest analysis for Guangdong Insight Brand Marketing GroupLtd

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Guangdong Insight Brand Marketing GroupLtd's profit received a boost of CN¥9.7m 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 analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. 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 Guangdong Insight Brand Marketing GroupLtd.

Our Take On Guangdong Insight Brand Marketing GroupLtd's Profit Performance

We'd posit that Guangdong Insight Brand Marketing GroupLtd's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Because of this, we think that it may be that Guangdong Insight Brand Marketing GroupLtd's statutory profits are better than its underlying earnings power. But on the bright side, its earnings per share have grown at an extremely impressive rate over the last three years. 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. So while earnings quality is important, it's equally important to consider the risks facing Guangdong Insight Brand Marketing GroupLtd at this point in time. While conducting our analysis, we found that Guangdong Insight Brand Marketing GroupLtd has 2 warning signs and it would be unwise to ignore them.

This note has only looked at a single factor that sheds light on the nature of Guangdong Insight Brand Marketing GroupLtd's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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 that insiders are buying 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.