Guangdong Green Precision Components' (SZSE:300968) Problems Go Beyond Weak Profit

The market rallied behind Guangdong Green Precision Components Co., Ltd's (SZSE:300968) stock, leading do a rise in the share price after its recent weak earnings report. We think that shareholders might be missing some concerning factors that our analysis found.

View our latest analysis for Guangdong Green Precision Components

How Do Unusual Items Influence Profit?

For anyone who wants to understand Guangdong Green Precision Components' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥1.3m 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. 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 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).

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Guangdong Green Precision Components.

Our Take On Guangdong Green Precision Components' Profit Performance

Arguably, Guangdong Green Precision Components' statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Guangdong Green Precision Components' true underlying earnings power is actually less than its statutory profit. Sadly, its EPS was down over the last twelve months. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. If you want to do dive deeper into Guangdong Green Precision Components, you'd also look into what risks it is currently facing. For instance, we've identified 3 warning signs for Guangdong Green Precision Components (2 are a bit unpleasant) you should be familiar with.

Today we've zoomed in on a single data point to better understand the nature of Guangdong Green Precision Components' 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.