China Yuchai International's (NYSE:CYD) Promising Earnings May Rest On Soft Foundations

Despite posting some strong earnings, the market for China Yuchai International Limited's (NYSE:CYD) stock hasn't moved much. We did some digging, and we found some concerning factors in the details.

Check out our latest analysis for China Yuchai International

The Impact Of Unusual Items On Profit

Importantly, our data indicates that China Yuchai International's profit received a boost of CN¥77m in unusual items, over the last year. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. 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. And that's as you'd expect, given these boosts are described as 'unusual'. If China Yuchai International doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current 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 China Yuchai International's Profit Performance

Arguably, China Yuchai International's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that China Yuchai International's true underlying earnings power is actually less than its statutory profit. The good news is that, its earnings per share increased by 31% in the last year. 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. Case in point: We've spotted 1 warning sign for China Yuchai International you should be aware of.

This note has only looked at a single factor that sheds light on the nature of China Yuchai International'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.

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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.