We Think Jiangxi Copper's (HKG:358) Solid Earnings Are Understated

The market seemed underwhelmed by the solid earnings posted by Jiangxi Copper Company Limited (HKG:358) recently. We have done some analysis, and found some encouraging factors that we believe the shareholders should consider.

View our latest analysis for Jiangxi Copper

How Do Unusual Items Influence Profit?

To properly understand Jiangxi Copper's profit results, we need to consider the CN¥2.0b expense attributed to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And that's hardly a surprise given these line items are considered unusual. Assuming those unusual expenses don't come up again, we'd therefore expect Jiangxi Copper to produce a higher profit next year, all else being equal.

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 Jiangxi Copper's Profit Performance

Because unusual items detracted from Jiangxi Copper's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Because of this, we think Jiangxi Copper's earnings potential is at least as good as it seems, and maybe even better! And on top of that, its earnings per share have grown at 23% per year over the last three years. 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. To help with this, we've discovered 2 warning signs (1 is significant!) that you ought to be aware of before buying any shares in Jiangxi Copper.

This note has only looked at a single factor that sheds light on the nature of Jiangxi Copper'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 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.