There May Be Reason For Hope In Zibuyu Group's (HKG:2420) Disappointing Earnings

Investors were disappointed with the weak earnings posted by Zibuyu Group Limited (HKG:2420 ). Despite the soft profit numbers, our analysis has optimistic about the overall quality of the income statement.

Check out our latest analysis for Zibuyu Group

How Do Unusual Items Influence Profit?

For anyone who wants to understand Zibuyu Group's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CN¥24m due to unusual items. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. 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. If Zibuyu Group doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming 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 Zibuyu Group's Profit Performance

Because unusual items detracted from Zibuyu Group'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 Zibuyu Group's earnings potential is at least as good as it seems, and maybe even better! On the other hand, its EPS actually shrunk in the last twelve months. 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. So while earnings quality is important, it's equally important to consider the risks facing Zibuyu Group at this point in time. While conducting our analysis, we found that Zibuyu Group has 2 warning signs and it would be unwise to ignore these.

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