We Think You Should Be Aware Of Some Concerning Factors In China Weaving Materials Holdings' (HKG:3778) Earnings

Following the solid earnings report from China Weaving Materials Holdings Limited (HKG:3778), the market responded by bidding up the stock price. While the profit numbers were good, our analysis has found some concerning factors that shareholders should be aware of.

See our latest analysis for China Weaving Materials Holdings

The Impact Of Unusual Items On Profit

Importantly, our data indicates that China Weaving Materials Holdings' profit received a boost of CN¥6.8m 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. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. 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 China Weaving Materials Holdings.

Our Take On China Weaving Materials Holdings' Profit Performance

Arguably, China Weaving Materials Holdings' statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that China Weaving Materials Holdings' true underlying earnings power is actually less than its statutory profit. The good news is that it earned a profit in the last twelve months, despite its previous loss. 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 want to do dive deeper into China Weaving Materials Holdings, you'd also look into what risks it is currently facing. To that end, you should learn about the 3 warning signs we've spotted with China Weaving Materials Holdings (including 1 which is a bit concerning).

Today we've zoomed in on a single data point to better understand the nature of China Weaving Materials Holdings' 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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

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This article by Simply Wall St is general in nature. 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.
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