A lackluster earnings announcement from China Northern Rare Earth (Group) High-Tech Co.,Ltd (SHSE:600111) last week didn't sink the stock price. However, we believe that investors should be aware of some underlying factors which may be of concern.
See our latest analysis for China Northern Rare Earth (Group) High-TechLtd
The Impact Of Unusual Items On Profit
Importantly, our data indicates that China Northern Rare Earth (Group) High-TechLtd's profit received a boost of CN¥330m in unusual items, over the last year. 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. If China Northern Rare Earth (Group) High-TechLtd doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.
That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.
Our Take On China Northern Rare Earth (Group) High-TechLtd's Profit Performance
We'd posit that China Northern Rare Earth (Group) High-TechLtd's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Therefore, it seems possible to us that China Northern Rare Earth (Group) High-TechLtd's true underlying earnings power is actually less than its statutory profit. But the good news is that its EPS growth over the last three years has been very impressive. 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. While conducting our analysis, we found that China Northern Rare Earth (Group) High-TechLtd has 2 warning signs and it would be unwise to ignore these.
Today we've zoomed in on a single data point to better understand the nature of China Northern Rare Earth (Group) High-TechLtd'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.