Tianjin Tianbao Infrastructure's (SZSE:000965) Promising Earnings May Rest On Soft Foundations

Despite posting some strong earnings, the market for Tianjin Tianbao Infrastructure Co., Ltd.'s (SZSE:000965) stock hasn't moved much. We did some digging, and we found some concerning factors in the details.

View our latest analysis for Tianjin Tianbao Infrastructure

How Do Unusual Items Influence Profit?

For anyone who wants to understand Tianjin Tianbao Infrastructure's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥131m 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. And, after all, that's exactly what the accounting terminology implies. We can see that Tianjin Tianbao Infrastructure's positive unusual items were quite significant relative to its profit in the year to September 2024. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Tianjin Tianbao Infrastructure.

Our Take On Tianjin Tianbao Infrastructure's Profit Performance

As previously mentioned, Tianjin Tianbao Infrastructure's large boost from unusual items won't be there indefinitely, so its statutory earnings are probably a poor guide to its underlying profitability. For this reason, we think that Tianjin Tianbao Infrastructure's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. On the bright side, the company showed enough improvement to book a profit this year, after losing money 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. So while earnings quality is important, it's equally important to consider the risks facing Tianjin Tianbao Infrastructure at this point in time. In terms of investment risks, we've identified 2 warning signs with Tianjin Tianbao Infrastructure, and understanding them should be part of your investment process.

Today we've zoomed in on a single data point to better understand the nature of Tianjin Tianbao Infrastructure'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. 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.