Investors were disappointed by CIG ShangHai Co., Ltd.'s (SHSE:603083 ) latest earnings release. We did some analysis, and found that there are some reasons to be cautious about the headline numbers.
How Do Unusual Items Influence Profit?
For anyone who wants to understand CIG ShangHai's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥9.3m worth of unusual items. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. 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. And that's as you'd expect, given these boosts are described as 'unusual'. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).
Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of CIG ShangHai.
Our Take On CIG ShangHai's Profit Performance
Arguably, CIG ShangHai's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that CIG ShangHai's true underlying earnings power is actually less than its statutory profit. Sadly, its EPS was down over the last twelve months. 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'd like to know more about CIG ShangHai as a business, it's important to be aware of any risks it's facing. Every company has risks, and we've spotted 3 warning signs for CIG ShangHai you should know about.
This note has only looked at a single factor that sheds light on the nature of CIG ShangHai'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. 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.