Chaozhou Three-Circle (Group)Ltd's (SZSE:300408) Solid Profits Have Weak Fundamentals

Investors were disappointed with Chaozhou Three-Circle (Group) Co.,Ltd.'s (SZSE:300408) earnings, despite the strong profit numbers. We did some digging and found some worrying underlying problems.

See our latest analysis for Chaozhou Three-Circle (Group)Ltd

The Impact Of Unusual Items On Profit

For anyone who wants to understand Chaozhou Three-Circle (Group)Ltd's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥330m worth of unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And, after all, that's exactly what the accounting terminology implies. If Chaozhou Three-Circle (Group)Ltd 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 Chaozhou Three-Circle (Group)Ltd's Profit Performance

We'd posit that Chaozhou Three-Circle (Group)Ltd'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 Chaozhou Three-Circle (Group)Ltd's statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 43% EPS growth 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 discovered 1 warning sign that you should run your eye over to get a better picture of Chaozhou Three-Circle (Group)Ltd.

This note has only looked at a single factor that sheds light on the nature of Chaozhou Three-Circle (Group)Ltd'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.

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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.