China Quanjude(Group) Co.,Ltd.'s (SZSE:002186) robust earnings report didn't manage to move the market for its stock. Our analysis suggests that shareholders have noticed something concerning in the numbers.
How Do Unusual Items Influence Profit?
To properly understand China Quanjude(Group)Ltd's profit results, we need to consider the CN¥8.8m gain attributed to 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. Which is hardly surprising, given the name. We can see that China Quanjude(Group)Ltd's positive unusual items were quite significant relative to its profit in the year to March 2024. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.
Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of China Quanjude(Group)Ltd.
Our Take On China Quanjude(Group)Ltd's Profit Performance
As we discussed above, we think the significant positive unusual item makes China Quanjude(Group)Ltd's earnings a poor guide to its underlying profitability. As a result, we think it may well be the case that China Quanjude(Group)Ltd's underlying earnings power is lower than its statutory profit. On the bright side, the company showed enough improvement to book a profit this year, after losing money 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. If you want to do dive deeper into China Quanjude(Group)Ltd, you'd also look into what risks it is currently facing. Every company has risks, and we've spotted 1 warning sign for China Quanjude(Group)Ltd you should know about.
This note has only looked at a single factor that sheds light on the nature of China Quanjude(Group)Ltd'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. 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.