Wuxi Online Offline Communication Information Technology Co., Ltd.'s (SZSE:300959) stock showed strength, with investors undeterred by its weak earnings report. We think that shareholders might be missing some concerning factors that our analysis found.
An Unusual Tax Situation
We can see that Wuxi Online Offline Communication Information Technology received a tax benefit of CN¥1.8m. This is of course a bit out of the ordinary, given it is more common for companies to be paying tax than receiving tax benefits! We're sure the company was pleased with its tax benefit. However, the devil in the detail is that these kind of benefits only impact in the year they are booked, and are often one-off in nature. Assuming the tax benefit is not repeated every year, we could see its profitability drop noticeably, all else being equal. So while we think it's great to receive a tax benefit, it does tend to imply an increased risk that the statutory profit overstates the sustainable earnings power of the business.
Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Wuxi Online Offline Communication Information Technology.
Our Take On Wuxi Online Offline Communication Information Technology's Profit Performance
Wuxi Online Offline Communication Information Technology reported that it received a tax benefit, rather than paid tax, in its last report. As a result we don't think its profit result, which includes that tax-boost, is a good guide to its sustainable profit levels. Therefore, it seems possible to us that Wuxi Online Offline Communication Information Technology's true underlying earnings power is actually less than its statutory profit. In further bad news, its earnings per share decreased 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. If you'd like to know more about Wuxi Online Offline Communication Information Technology as a business, it's important to be aware of any risks it's facing. Every company has risks, and we've spotted 4 warning signs for Wuxi Online Offline Communication Information Technology (of which 1 shouldn't be ignored!) you should know about.
Today we've zoomed in on a single data point to better understand the nature of Wuxi Online Offline Communication Information Technology'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.