Cre8 Direct (NingBo) Co., Ltd.'s (SZSE:300703) 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.
The Impact Of Unusual Items On Profit
For anyone who wants to understand Cre8 Direct (NingBo)'s profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥8.3m 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, after all, that's exactly what the accounting terminology implies. If Cre8 Direct (NingBo) 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 Cre8 Direct (NingBo).
Our Take On Cre8 Direct (NingBo)'s Profit Performance
Arguably, Cre8 Direct (NingBo)'s statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Cre8 Direct (NingBo)'s true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 39% per annum growth in EPS for the last three. 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. For instance, we've identified 2 warning signs for Cre8 Direct (NingBo) (1 doesn't sit too well with us) you should be familiar with.
Today we've zoomed in on a single data point to better understand the nature of Cre8 Direct (NingBo)'s profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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.
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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.