Zhejiang Tengy Environmental Technology's (HKG:1527) Earnings Are Of Questionable Quality

Despite posting some strong earnings, the market for Zhejiang Tengy Environmental Technology Co., Ltd's (HKG:1527) stock hasn't moved much. We did some digging, and we found some concerning factors in the details.

Check out our latest analysis for Zhejiang Tengy Environmental Technology

How Do Unusual Items Influence Profit?

To properly understand Zhejiang Tengy Environmental Technology's profit results, we need to consider the CN¥8.9m gain attributed to unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. 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 Zhejiang Tengy Environmental Technology.

Our Take On Zhejiang Tengy Environmental Technology's Profit Performance

Arguably, Zhejiang Tengy Environmental Technology's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Zhejiang Tengy Environmental Technology's true underlying earnings power is actually less than its statutory profit. The silver lining is that its EPS growth over the last year has been really wonderful, even if it's not a perfect measure. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. If you'd like to know more about Zhejiang Tengy Environmental Technology as a business, it's important to be aware of any risks it's facing. To that end, you should learn about the 3 warning signs we've spotted with Zhejiang Tengy Environmental Technology (including 1 which can't be ignored).

This note has only looked at a single factor that sheds light on the nature of Zhejiang Tengy Environmental Technology's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. Some people consider a high return on equity to be a good sign of a quality business. 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.