The subdued stock price reaction suggests that CITIC Guoan Information Industry Co., Ltd.'s (SZSE:000839) strong earnings didn't offer any surprises. Our analysis suggests that investors might be missing some promising details.

How Do Unusual Items Influence Profit?

For anyone who wants to understand CITIC Guoan Information Industry's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CN¥44m due to unusual items. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. 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. Assuming those unusual expenses don't come up again, we'd therefore expect CITIC Guoan Information Industry to produce a higher profit next year, all else being equal.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of CITIC Guoan Information Industry.

Our Take On CITIC Guoan Information Industry's Profit Performance

Unusual items (expenses) detracted from CITIC Guoan Information Industry's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that CITIC Guoan Information Industry's statutory profit actually understates its earnings potential! And one can definitely find a positive in the fact that it made a profit this year, despite losing money 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. For instance, we've identified 2 warning signs for CITIC Guoan Information Industry (1 is significant) you should be familiar with.

This note has only looked at a single factor that sheds light on the nature of CITIC Guoan Information Industry's profit. But there are plenty of other ways to inform your opinion of a company. 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.