A lackluster earnings announcement from Ningxia Qinglong Pipes Industry Group Co., Ltd. (SZSE:002457) last week didn't sink the stock price. We think that investors are worried about some weaknesses underlying the earnings.
The Impact Of Unusual Items On Profit
For anyone who wants to understand Ningxia Qinglong Pipes Industry Group's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥17m worth of unusual items. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. Which is hardly surprising, given the name. 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).
Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Ningxia Qinglong Pipes Industry Group.
Our Take On Ningxia Qinglong Pipes Industry Group's Profit Performance
We'd posit that Ningxia Qinglong Pipes Industry Group's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Because of this, we think that it may be that Ningxia Qinglong Pipes Industry Group's statutory profits are better than its underlying earnings power. Sadly, its EPS was down over 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 Ningxia Qinglong Pipes Industry Group at this point in time. For example, we've found that Ningxia Qinglong Pipes Industry Group has 4 warning signs (1 is significant!) that deserve your attention before going any further with your analysis.
Today we've zoomed in on a single data point to better understand the nature of Ningxia Qinglong Pipes Industry Group's profit. But there are plenty of other ways to inform your opinion of a company. 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. 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.