Despite posting some strong earnings, the market for Ningbo Kangqiang Electronics Co., Ltd's (SZSE:002119) stock hasn't moved much. We did some digging, and we found some concerning factors in the details.

How Do Unusual Items Influence Profit?

To properly understand Ningbo Kangqiang Electronics' profit results, we need to consider the CN¥15m 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. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And, after all, that's exactly what the accounting terminology implies. 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).

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Ningbo Kangqiang Electronics.

Our Take On Ningbo Kangqiang Electronics' Profit Performance

We'd posit that Ningbo Kangqiang Electronics' statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Therefore, it seems possible to us that Ningbo Kangqiang Electronics' true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 51% EPS growth in the last year. 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Case in point: We've spotted 1 warning sign for Ningbo Kangqiang Electronics you should be aware of.

This note has only looked at a single factor that sheds light on the nature of Ningbo Kangqiang Electronics' 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 with significant insider holdings 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.