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Investors Shouldn't Be Too Comfortable With China Chunlai Education Group's (HKG:1969) Robust Earnings

Simply Wall St ·  {{timeTz}}

China Chunlai Education Group Co., Ltd.'s (HKG:1969) 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.

See our latest analysis for China Chunlai Education Group

SEHK:1969 Earnings and Revenue History May 5th 2022

How Do Unusual Items Influence Profit?

Importantly, our data indicates that China Chunlai Education Group's profit received a boost of CN¥247m in unusual items, over the last year. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And, after all, that's exactly what the accounting terminology implies. China Chunlai Education Group had a rather significant contribution from unusual items relative to its profit to February 2022. 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 China Chunlai Education Group.

Our Take On China Chunlai Education Group's Profit Performance

As we discussed above, we think the significant positive unusual item makes China Chunlai Education Group's earnings a poor guide to its underlying profitability. As a result, we think it may well be the case that China Chunlai Education Group's underlying earnings power is lower than its statutory profit. But on the bright side, its earnings per share have grown at an extremely impressive rate over the last three years. 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. At Simply Wall St, we found 2 warning signs for China Chunlai Education Group and we think they deserve your attention.

Today we've zoomed in on a single data point to better understand the nature of China Chunlai Education Group'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. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.

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