Yantai Zhenghai Magnetic Material Co., Ltd. (SZSE:300224) just released a solid earnings report, and the stock displayed some strength. However, we think that shareholders should be cautious as we found some worrying factors underlying the profit.

The Impact Of Unusual Items On Profit

For anyone who wants to understand Yantai Zhenghai Magnetic Material's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥54m 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 analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's as you'd expect, given these boosts are described as 'unusual'. If Yantai Zhenghai Magnetic Material doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

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 Yantai Zhenghai Magnetic Material's Profit Performance

Arguably, Yantai Zhenghai Magnetic Material's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Yantai Zhenghai Magnetic Material's statutory profits are better than its underlying earnings power. But on the bright side, its earnings per share have grown at an extremely impressive rate over the last three years. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. If you want to do dive deeper into Yantai Zhenghai Magnetic Material, you'd also look into what risks it is currently facing. You'd be interested to know, that we found 1 warning sign for Yantai Zhenghai Magnetic Material and you'll want to know about this.

This note has only looked at a single factor that sheds light on the nature of Yantai Zhenghai Magnetic Material'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.

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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.