Concerns Surrounding Chaozhou Three-Circle (Group)Ltd's (SZSE:300408) Performance

Following the solid earnings report from Chaozhou Three-Circle (Group) Co.,Ltd. (SZSE:300408), the market responded by bidding up the stock price. Despite this, our analysis suggests that there are some factors weakening the foundations of those good profit numbers.

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

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Chaozhou Three-Circle (Group)Ltd's profit received a boost of CN¥343m in unusual items, over the last year. 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 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. Therefore, it seems possible to us that Chaozhou Three-Circle (Group)Ltd's true underlying earnings power is actually less than its statutory profit. The good news is that, its earnings per share increased by 26% 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 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 2 warning signs with Chaozhou Three-Circle (Group)Ltd, and understanding these should be part of your investment process.

Today we've zoomed in on a single data point to better understand 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. 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 that insiders are buying 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.