Investors Shouldn't Be Too Comfortable With Jiangsu Xiehe ElectronicLtd's (SHSE:605258) Earnings

Despite posting some strong earnings, the market for Jiangsu Xiehe Electronic Co.,Ltd.'s (SHSE:605258) stock hasn't moved much. We did some digging, and we found some concerning factors in the details.

Check out our latest analysis for Jiangsu Xiehe ElectronicLtd

How Do Unusual Items Influence Profit?

To properly understand Jiangsu Xiehe ElectronicLtd's profit results, we need to consider the CN¥9.5m 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. Which is hardly surprising, given the name. If Jiangsu Xiehe ElectronicLtd 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 Jiangsu Xiehe ElectronicLtd.

Our Take On Jiangsu Xiehe ElectronicLtd's Profit Performance

We'd posit that Jiangsu Xiehe ElectronicLtd's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Therefore, it seems possible to us that Jiangsu Xiehe ElectronicLtd's true underlying earnings power is actually less than its statutory profit. The good news is that, its earnings per share increased by 35% 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. So while earnings quality is important, it's equally important to consider the risks facing Jiangsu Xiehe ElectronicLtd at this point in time. Be aware that Jiangsu Xiehe ElectronicLtd is showing 2 warning signs in our investment analysis and 1 of those shouldn't be ignored...

This note has only looked at a single factor that sheds light on the nature of Jiangsu Xiehe ElectronicLtd'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.

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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.