Solid Earnings May Not Tell The Whole Story For Zhejiang Xinzhonggang Thermal Power (SHSE:605162)

Following the solid earnings report from Zhejiang Xinzhonggang Thermal Power Co., LTD. (SHSE:605162), the market responded by bidding up the stock price. However, we think that shareholders should be cautious as we found some worrying factors underlying the profit.

See our latest analysis for Zhejiang Xinzhonggang Thermal Power

How Do Unusual Items Influence Profit?

To properly understand Zhejiang Xinzhonggang Thermal Power's profit results, we need to consider the CN¥29m 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. If Zhejiang Xinzhonggang Thermal Power doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Zhejiang Xinzhonggang Thermal Power.

Our Take On Zhejiang Xinzhonggang Thermal Power's Profit Performance

Arguably, Zhejiang Xinzhonggang Thermal Power's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Zhejiang Xinzhonggang Thermal Power's statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 28% 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. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. When we did our research, we found 2 warning signs for Zhejiang Xinzhonggang Thermal Power (1 is significant!) that we believe deserve your full attention.

Today we've zoomed in on a single data point to better understand the nature of Zhejiang Xinzhonggang Thermal Power'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.