Qingdao Daneng Environmental Protection Equipment Co., Ltd.'s (SHSE:688501) stock was strong after they recently reported robust earnings. We did some analysis and think that investors are missing some details hidden beneath the profit numbers.

How Do Unusual Items Influence Profit?

To properly understand Qingdao Daneng Environmental Protection Equipment's profit results, we need to consider the CN¥14m 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. 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. Which is hardly surprising, given the name. If Qingdao Daneng Environmental Protection Equipment 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 Qingdao Daneng Environmental Protection Equipment's Profit Performance

Arguably, Qingdao Daneng Environmental Protection Equipment's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Qingdao Daneng Environmental Protection Equipment's true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 36% per annum growth in EPS for the last three. 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 Qingdao Daneng Environmental Protection Equipment as a business, it's important to be aware of any risks it's facing. For example, we've discovered 1 warning sign that you should run your eye over to get a better picture of Qingdao Daneng Environmental Protection Equipment.

Today we've zoomed in on a single data point to better understand the nature of Qingdao Daneng Environmental Protection Equipment'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.