A lackluster earnings announcement from XTC New Energy Materials(Xiamen) Co.,Ltd. (SHSE:688778) last week didn't sink the stock price. We think that investors are worried about some weaknesses underlying the earnings.
The Impact Of Unusual Items On Profit
To properly understand XTC New Energy Materials(Xiamen)Ltd's profit results, we need to consider the CN¥113m gain attributed to 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 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. 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).
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 XTC New Energy Materials(Xiamen)Ltd's Profit Performance
We'd posit that XTC New Energy Materials(Xiamen)Ltd's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Therefore, it seems possible to us that XTC New Energy Materials(Xiamen)Ltd's true underlying earnings power is actually less than its statutory profit. In further bad news, its earnings per share decreased in the 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. So while earnings quality is important, it's equally important to consider the risks facing XTC New Energy Materials(Xiamen)Ltd at this point in time. For example - XTC New Energy Materials(Xiamen)Ltd has 2 warning signs we think you should be aware of.
Today we've zoomed in on a single data point to better understand the nature of XTC New Energy Materials(Xiamen)Ltd'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.
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.