Tongfu MicroelectronicsLtd's (SZSE:002156) Problems Go Beyond Weak Profit

The market wasn't impressed with the soft earnings from Tongfu Microelectronics Co.,Ltd (SZSE:002156) recently. We did some analysis, and found that there are some reasons to be cautious about the headline numbers.

View our latest analysis for Tongfu MicroelectronicsLtd

How Do Unusual Items Influence Profit?

To properly understand Tongfu MicroelectronicsLtd's profit results, we need to consider the CN¥176m 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 analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. Which is hardly surprising, given the name. If Tongfu MicroelectronicsLtd doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

Our Take On Tongfu MicroelectronicsLtd's Profit Performance

Arguably, Tongfu MicroelectronicsLtd's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Tongfu MicroelectronicsLtd's true underlying earnings power is actually less than its statutory profit. In further bad news, its earnings per share decreased in the last year. 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. For example, we've found that Tongfu MicroelectronicsLtd has 3 warning signs (1 doesn't sit too well with us!) that deserve your attention before going any further with your analysis.

Today we've zoomed in on a single data point to better understand the nature of Tongfu MicroelectronicsLtd'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 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.