Wuxi Sunlit Science and Technology's (HKG:1289) Profits Appear To Have Quality Issues

The recent earnings posted by Wuxi Sunlit Science and Technology Company Limited (HKG:1289) were solid, but the stock didn't move as much as we expected. We think this is due to investors looking beyond the statutory profits and being concerned with what they see.

Check out our latest analysis for Wuxi Sunlit Science and Technology

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Wuxi Sunlit Science and Technology's profit received a boost of CN¥8.4m in unusual items, over the last year. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. 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'. We can see that Wuxi Sunlit Science and Technology's positive unusual items were quite significant relative to its profit in the year to December 2023. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Wuxi Sunlit Science and Technology.

Our Take On Wuxi Sunlit Science and Technology's Profit Performance

As we discussed above, we think the significant positive unusual item makes Wuxi Sunlit Science and Technology's earnings a poor guide to its underlying profitability. For this reason, we think that Wuxi Sunlit Science and Technology's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. But on the bright side, its earnings per share have grown at an extremely impressive rate over the last three years. 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. 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. Every company has risks, and we've spotted 3 warning signs for Wuxi Sunlit Science and Technology you should know about.

Today we've zoomed in on a single data point to better understand the nature of Wuxi Sunlit Science and Technology'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 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.