We Think You Should Be Aware Of Some Concerning Factors In Hefei Chipmore TechnologyLtd's (SHSE:688352) Earnings

Following the solid earnings report from Hefei Chipmore Technology Co.,Ltd. (SHSE:688352), the market responded by bidding up the stock price. While the profit numbers were good, our analysis has found some concerning factors that shareholders should be aware of.

View our latest analysis for Hefei Chipmore TechnologyLtd

How Do Unusual Items Influence Profit?

To properly understand Hefei Chipmore TechnologyLtd's profit results, we need to consider the CN¥36m gain attributed to unusual items. 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 that's as you'd expect, given these boosts are described as 'unusual'. 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 Hefei Chipmore TechnologyLtd.

Our Take On Hefei Chipmore TechnologyLtd's Profit Performance

We'd posit that Hefei Chipmore TechnologyLtd's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Therefore, it seems possible to us that Hefei Chipmore TechnologyLtd's true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 21% per annum growth in EPS for the last three. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. At Simply Wall St, we found 2 warning signs for Hefei Chipmore TechnologyLtd and we think they deserve your attention.

Today we've zoomed in on a single data point to better understand the nature of Hefei Chipmore TechnologyLtd'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 with high insider ownership.

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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.