Hongli Zhihui GroupLtd's (SZSE:300219) Sluggish Earnings Might Be Just The Beginning Of Its Problems

Last week's earnings announcement from Hongli Zhihui Group Co.,Ltd. (SZSE:300219) was disappointing to investors, with a sluggish profit figure. We did some analysis, and found that there are some reasons to be cautious about the headline numbers.

Check out our latest analysis for Hongli Zhihui GroupLtd

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Hongli Zhihui GroupLtd's profit received a boost of CN¥13m 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 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. If Hongli Zhihui 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 Hongli Zhihui GroupLtd.

Our Take On Hongli Zhihui GroupLtd's Profit Performance

We'd posit that Hongli Zhihui 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 Hongli Zhihui 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. If you'd like to know more about Hongli Zhihui GroupLtd as a business, it's important to be aware of any risks it's facing. Case in point: We've spotted 3 warning signs for Hongli Zhihui GroupLtd you should be aware of.

This note has only looked at a single factor that sheds light on the nature of Hongli Zhihui 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. 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.