China Telecom (HKG:728) Is Posting Promising Earnings But The Good News Doesn’t Stop There

Despite posting healthy earnings, China Telecom Corporation Limited's (HKG:728 ) stock has been quite weak. Our analysis suggests that there are some reasons for hope that investors should be aware of.

View our latest analysis for China Telecom

How Do Unusual Items Influence Profit?

Importantly, our data indicates that China Telecom's profit was reduced by CN¥5.0b, due to unusual items, over the last year. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. 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 China Telecom 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 China Telecom's Profit Performance

Unusual items (expenses) detracted from China Telecom's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that China Telecom's statutory profit actually understates its earnings potential! And the EPS is up 12% annually, 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. In terms of investment risks, we've identified 2 warning signs with China Telecom, and understanding them should be part of your investment process.

Today we've zoomed in on a single data point to better understand the nature of China Telecom's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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 that insiders are buying to be useful.

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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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