State Grid Information & Communication's (SHSE:600131) Problems Go Beyond Weak Profit

Last week's earnings announcement from State Grid Information & Communication Co., Ltd. (SHSE:600131) was disappointing to investors, with a sluggish profit figure. Our analysis has found some reasons to be concerned, beyond the weak headline numbers.

See our latest analysis for State Grid Information & Communication

How Do Unusual Items Influence Profit?

For anyone who wants to understand State Grid Information & Communication's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥54m 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 analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. 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).

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 State Grid Information & Communication's Profit Performance

We'd posit that State Grid Information & Communication'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 State Grid Information & Communication's statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 23% 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. In terms of investment risks, we've identified 1 warning sign with State Grid Information & Communication, and understanding this should be part of your investment process.

This note has only looked at a single factor that sheds light on the nature of State Grid Information & Communication's profit. But there are plenty of other ways to inform your opinion of a company. 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. 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.

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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.