A lackluster earnings announcement from CITIC Metal Co., Ltd (SHSE:601061) last week didn't sink the stock price. Our analysis suggests that along with soft profit numbers, investors should be aware of some other underlying weaknesses in the numbers.
How Do Unusual Items Influence Profit?
To properly understand CITIC Metal's profit results, we need to consider the CN¥451m gain attributed to 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. Which is hardly surprising, given the name. If CITIC Metal doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.
Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of CITIC Metal.
Our Take On CITIC Metal's Profit Performance
Arguably, CITIC Metal's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that CITIC Metal's statutory profits are better than its underlying earnings power. Nonetheless, it's still worth noting that its earnings per share have grown at 65% over the last three years. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. If you'd like to know more about CITIC Metal 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 CITIC Metal (of which 1 is significant!) you should know about.
Today we've zoomed in on a single data point to better understand the nature of CITIC Metal's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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.
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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.