Despite posting some strong earnings, the market for Zhejiang Taihua New Material Group Co., Ltd.'s (SHSE:603055) stock hasn't moved much. We did some digging, and we found some concerning factors in the details.

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Zhejiang Taihua New Material Group's profit received a boost of CN¥85m in unusual items, over the last year. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that's exactly what the accounting terminology implies. If Zhejiang Taihua New Material Group 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 Zhejiang Taihua New Material Group's Profit Performance

Arguably, Zhejiang Taihua New Material Group's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Zhejiang Taihua New Material Group's statutory profits are better than its underlying earnings power. The silver lining is that its EPS growth over the last year has been really wonderful, even if it's not a perfect measure. 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. If you'd like to know more about Zhejiang Taihua New Material Group as a business, it's important to be aware of any risks it's facing. For example, we've found that Zhejiang Taihua New Material Group has 2 warning signs (1 is potentially serious!) that deserve your attention before going any further with your analysis.

This note has only looked at a single factor that sheds light on the nature of Zhejiang Taihua New Material Group'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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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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.