China Railway Materials' (SZSE:000927) Sluggish Earnings Might Be Just The Beginning Of Its Problems

China Railway Materials Company Limited's (SZSE:000927) recent weak earnings report didn't cause a big stock movement. However, we believe that investors should be aware of some underlying factors which may be of concern.

View our latest analysis for China Railway Materials

How Do Unusual Items Influence Profit?

To properly understand China Railway Materials' profit results, we need to consider the CN¥210m gain attributed to 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 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. China Railway Materials 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.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of China Railway Materials.

Our Take On China Railway Materials' Profit Performance

As we discussed above, we think the significant positive unusual item makes China Railway Materials' earnings a poor guide to its underlying profitability. For this reason, we think that China Railway Materials' statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. 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'd like to know more about China Railway Materials as a business, it's important to be aware of any risks it's facing. Case in point: We've spotted 2 warning signs for China Railway Materials you should be mindful of and 1 of them doesn't sit too well with us.

Today we've zoomed in on a single data point to better understand the nature of China Railway Materials' profit. 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. 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.