We Think That There Are More Issues For First Tractor (HKG:38) Than Just Sluggish Earnings

First Tractor Company Limited's (HKG:38) stock showed strength, with investors undeterred by its weak earnings report. Sometimes, shareholders are willing to ignore soft numbers with the hope that they will improve, but our analysis suggests this is unlikely for First Tractor.

Our free stock report includes 1 warning sign investors should be aware of before investing in First Tractor. Read for free now.

How Do Unusual Items Influence Profit?

To properly understand First Tractor's profit results, we need to consider the CN¥74m 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. 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, after all, that's exactly what the accounting terminology implies. If First Tractor doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

Our Take On First Tractor's Profit Performance

Arguably, First Tractor's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that First Tractor's true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 61% 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. If you'd like to know more about First Tractor as a business, it's important to be aware of any risks it's facing. While conducting our analysis, we found that First Tractor has 1 warning sign and it would be unwise to ignore this.

Today we've zoomed in on a single data point to better understand the nature of First Tractor's 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. 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.