Wuhu Token Sciences' (SZSE:300088) Weak Earnings Might Be Worse Than They Appear

Wuhu Token Sciences Co., Ltd.'s (SZSE:300088) stock wasn't much affected by its recent lackluster earnings numbers. Our analysis suggests that they may be missing some concerning details underlying the profit numbers.

View our latest analysis for Wuhu Token Sciences

How Do Unusual Items Influence Profit?

For anyone who wants to understand Wuhu Token Sciences' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥148m 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'. Wuhu Token Sciences had a rather significant contribution from unusual items relative to its profit to September 2024. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

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.

An Unusual Tax Situation

Having already discussed the impact of the unusual items, we should also note that Wuhu Token Sciences received a tax benefit of CN¥12m. This is meaningful because companies usually pay tax rather than receive tax benefits. The receipt of a tax benefit is obviously a good thing, on its own. However, the devil in the detail is that these kind of benefits only impact in the year they are booked, and are often one-off in nature. Assuming the tax benefit is not repeated every year, we could see its profitability drop noticeably, all else being equal.

Our Take On Wuhu Token Sciences' Profit Performance

In its last report Wuhu Token Sciences received a tax benefit which might make its profit look better than it really is on a underlying level. Furthermore, it also benefitted from a positive unusual item, which boosted the profit result even higher. Considering all this we'd argue Wuhu Token Sciences' profits probably give an overly generous impression of its sustainable level of profitability. If you want to do dive deeper into Wuhu Token Sciences, you'd also look into what risks it is currently facing. Case in point: We've spotted 4 warning signs for Wuhu Token Sciences you should be mindful of and 1 of these is a bit concerning.

Our examination of Wuhu Token Sciences has focussed on certain factors that can make its earnings look better than they are. And, on that basis, we are somewhat skeptical. 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. 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.