A lackluster earnings announcement from Ningbo Yongxin Optics Co., Ltd. (SHSE:603297) last week didn't sink the stock price. We think that investors are worried about some weaknesses underlying the earnings.

See our latest analysis for Ningbo Yongxin Optics

How Do Unusual Items Influence Profit?

For anyone who wants to understand Ningbo Yongxin Optics' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥28m worth of unusual items. 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'. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

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 Ningbo Yongxin Optics' Profit Performance

Arguably, Ningbo Yongxin Optics' statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Ningbo Yongxin Optics' true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 44% per annum growth in EPS for the last three. 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. While conducting our analysis, we found that Ningbo Yongxin Optics has 3 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 Ningbo Yongxin Optics' 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. 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. 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.