Wuchan Zhongda GroupLtd's (SHSE:600704) Weak Earnings May Only Reveal A Part Of The Whole Picture

Wuchan Zhongda Group Co.,Ltd.'s (SHSE:600704) recent weak earnings report didn't cause a big stock movement. We think that investors are worried about some weaknesses underlying the earnings.

Check out our latest analysis for Wuchan Zhongda GroupLtd

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Wuchan Zhongda GroupLtd's profit received a boost of CN¥817m in unusual items, over the last year. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. 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 that's as you'd expect, given these boosts are described as 'unusual'. If Wuchan Zhongda GroupLtd 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 Wuchan Zhongda GroupLtd.

Our Take On Wuchan Zhongda GroupLtd's Profit Performance

We'd posit that Wuchan Zhongda 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 Wuchan Zhongda GroupLtd's statutory profits are better than its underlying earnings power. In further bad news, its earnings per share decreased in 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. So while earnings quality is important, it's equally important to consider the risks facing Wuchan Zhongda GroupLtd at this point in time. In terms of investment risks, we've identified 1 warning sign with Wuchan Zhongda GroupLtd, and understanding it should be part of your investment process.

Today we've zoomed in on a single data point to better understand the nature of Wuchan Zhongda GroupLtd's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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.