Jiangsu Luokai Mechanical &Electrical Co., Ltd.'s (SHSE:603829) recent weak earnings report didn't cause a big stock movement. However, we believe that investors should be aware of some underlying factors which may be of concern.

View our latest analysis for Jiangsu Luokai Mechanical &Electrical

The Impact Of Unusual Items On Profit

To properly understand Jiangsu Luokai Mechanical &Electrical's profit results, we need to consider the CN¥7.2m gain attributed to unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's as you'd expect, given these boosts are described as 'unusual'. 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 Jiangsu Luokai Mechanical &Electrical.

Our Take On Jiangsu Luokai Mechanical &Electrical's Profit Performance

Arguably, Jiangsu Luokai Mechanical &Electrical's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Jiangsu Luokai Mechanical &Electrical's true underlying earnings power is actually less than its statutory profit. Sadly, its EPS was down over the last twelve months. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. At Simply Wall St, we found 3 warning signs for Jiangsu Luokai Mechanical &Electrical and we think they deserve your attention.

Today we've zoomed in on a single data point to better understand the nature of Jiangsu Luokai Mechanical &Electrical'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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.