Additional Considerations Required While Assessing Chongqing Gas Group's (SHSE:600917) Strong Earnings

Despite posting some strong earnings, the market for Chongqing Gas Group Corporation Ltd.'s (SHSE:600917) stock hasn't moved much. Our analysis suggests that this might be because shareholders have noticed some concerning underlying factors.

See our latest analysis for Chongqing Gas Group

How Do Unusual Items Influence Profit?

To properly understand Chongqing Gas Group's profit results, we need to consider the CN¥47m 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 analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. Which is hardly surprising, given the name. 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 Chongqing Gas Group.

Our Take On Chongqing Gas Group's Profit Performance

Arguably, Chongqing Gas Group's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Chongqing Gas Group's true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 13% per annum growth in EPS for the last three. 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. Just as investors must consider earnings, it is also important to take into account the strength of a company's balance sheet. We've done some analysis and you can see our take on Chongqing Gas Group's balance sheet by clicking here.

Today we've zoomed in on a single data point to better understand the nature of Chongqing Gas Group's 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.