Qingdao Kingking Applied Chemistry Co., Ltd.'s (SZSE:002094) robust recent earnings didn't do much to move the stock. We think this is due to investors looking beyond the statutory profits and being concerned with what they see.
How Do Unusual Items Influence Profit?
For anyone who wants to understand Qingdao Kingking Applied Chemistry's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥16m 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 analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's as you'd expect, given these boosts are described as 'unusual'. Qingdao Kingking Applied Chemistry had a rather significant contribution from unusual items relative to its profit to December 2023. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.
Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Qingdao Kingking Applied Chemistry.
Our Take On Qingdao Kingking Applied Chemistry's Profit Performance
As previously mentioned, Qingdao Kingking Applied Chemistry's large boost from unusual items won't be there indefinitely, so its statutory earnings are probably a poor guide to its underlying profitability. For this reason, we think that Qingdao Kingking Applied Chemistry's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. On the bright side, the company showed enough improvement to book a profit this year, after losing money last year. 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. If you want to do dive deeper into Qingdao Kingking Applied Chemistry, you'd also look into what risks it is currently facing. At Simply Wall St, we found 1 warning sign for Qingdao Kingking Applied Chemistry and we think they deserve your attention.
This note has only looked at a single factor that sheds light on the nature of Qingdao Kingking Applied Chemistry's profit. But there are plenty of other ways to inform your opinion of a company. 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.