We Think China Renewable Energy Investment's (HKG:987) Robust Earnings Are Conservative

The subdued stock price reaction suggests that China Renewable Energy Investment Limited's (HKG:987) strong earnings didn't offer any surprises. We think that investors have missed some encouraging factors underlying the profit figures.

View our latest analysis for China Renewable Energy Investment

The Impact Of Unusual Items On Profit

For anyone who wants to understand China Renewable Energy Investment's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by HK$14m 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. 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 Renewable Energy Investment to produce a higher profit next year, all else being equal.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of China Renewable Energy Investment.

Our Take On China Renewable Energy Investment's Profit Performance

Unusual items (expenses) detracted from China Renewable Energy Investment's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that China Renewable Energy Investment's statutory profit actually understates its earnings potential! Better yet, its EPS are growing strongly, which is nice to see. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. Every company has risks, and we've spotted 3 warning signs for China Renewable Energy Investment you should know about.

This note has only looked at a single factor that sheds light on the nature of China Renewable Energy Investment's 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.