A lackluster earnings announcement from Qingdao Richmat Intelligence Technology Inc. (SZSE:301320) last week didn't sink the stock price. We think that investors are worried about some weaknesses underlying the earnings.

The Impact Of Unusual Items On Profit

To properly understand Qingdao Richmat Intelligence Technology's profit results, we need to consider the CN¥5.7m 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. And, after all, that's exactly what the accounting terminology implies. If Qingdao Richmat Intelligence Technology doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Qingdao Richmat Intelligence Technology.

Our Take On Qingdao Richmat Intelligence Technology's Profit Performance

Arguably, Qingdao Richmat Intelligence Technology's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Qingdao Richmat Intelligence Technology'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. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. When we did our research, we found 2 warning signs for Qingdao Richmat Intelligence Technology (1 is concerning!) that we believe deserve your full attention.

This note has only looked at a single factor that sheds light on the nature of Qingdao Richmat Intelligence Technology'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 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.