A lackluster earnings announcement from Shaoxing Xingxin New Material Co.,Ltd (SZSE:001358) last week didn't sink the stock price. Our analysis suggests that along with soft profit numbers, investors should be aware of some other underlying weaknesses in the numbers.

How Do Unusual Items Influence Profit?

To properly understand Shaoxing Xingxin New MaterialLtd's profit results, we need to consider the CN¥5.7m gain attributed to 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. 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 Shaoxing Xingxin New MaterialLtd.

Our Take On Shaoxing Xingxin New MaterialLtd's Profit Performance

Arguably, Shaoxing Xingxin New MaterialLtd's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Shaoxing Xingxin New MaterialLtd's statutory profits are better than its underlying earnings power. Sadly, its EPS was down over the last twelve months. 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. If you'd like to know more about Shaoxing Xingxin New MaterialLtd as a business, it's important to be aware of any risks it's facing. At Simply Wall St, we found 1 warning sign for Shaoxing Xingxin New MaterialLtd and we think they deserve your attention.

Today we've zoomed in on a single data point to better understand the nature of Shaoxing Xingxin New MaterialLtd'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 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.