The market for Ningbo Tianlong Electronics Co., Ltd.'s (SHSE:603266) shares didn't move much after it posted weak earnings recently. Our analysis suggests that while the profits are soft, the foundations of the business are strong.
How Do Unusual Items Influence Profit?
Importantly, our data indicates that Ningbo Tianlong Electronics' profit was reduced by CN¥16m, due to unusual items, over the last year. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And that's hardly a surprise given these line items are considered unusual. Assuming those unusual expenses don't come up again, we'd therefore expect Ningbo Tianlong Electronics to produce a higher profit next year, all else being equal.
Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Ningbo Tianlong Electronics.
Our Take On Ningbo Tianlong Electronics' Profit Performance
Unusual items (expenses) detracted from Ningbo Tianlong Electronics' earnings over the last year, but we might see an improvement next year. Because of this, we think Ningbo Tianlong Electronics' earnings potential is at least as good as it seems, and maybe even better! And on top of that, its earnings per share have grown at 9.6% per year over the last three years. 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 Ningbo Tianlong Electronics at this point in time. In terms of investment risks, we've identified 2 warning signs with Ningbo Tianlong Electronics, and understanding them should be part of your investment process.
This note has only looked at a single factor that sheds light on the nature of Ningbo Tianlong Electronics' 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.