A lackluster earnings announcement from Jiangsu Tongguang Electronic Wire & Cable Co., Ltd. (SZSE:300265) 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

Importantly, our data indicates that Jiangsu Tongguang Electronic Wire & Cable's profit received a boost of CN¥17m in unusual items, over the last year. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. 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 Jiangsu Tongguang Electronic Wire & Cable 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 Jiangsu Tongguang Electronic Wire & Cable.

Our Take On Jiangsu Tongguang Electronic Wire & Cable's Profit Performance

Arguably, Jiangsu Tongguang Electronic Wire & Cable's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Jiangsu Tongguang Electronic Wire & Cable's statutory profits are better than its underlying earnings power. Nonetheless, it's still worth noting that its earnings per share have grown at 10% over the last three years. 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. When we did our research, we found 3 warning signs for Jiangsu Tongguang Electronic Wire & Cable (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 Jiangsu Tongguang Electronic Wire & Cable'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 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.