Fujian Minfa Aluminium Inc.'s (SZSE:002578) stock showed strength, with investors undeterred by its weak earnings report. We think that shareholders might be missing some concerning factors that our analysis found.
The Impact Of Unusual Items On Profit
For anyone who wants to understand Fujian Minfa Aluminium's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥2.2m worth of 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 Fujian Minfa Aluminium 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 Fujian Minfa Aluminium.
Our Take On Fujian Minfa Aluminium's Profit Performance
Arguably, Fujian Minfa Aluminium's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Fujian Minfa Aluminium's statutory profits are better than its underlying earnings power. In further bad news, its earnings per share decreased in the last year. 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. For example, Fujian Minfa Aluminium has 3 warning signs (and 2 which are significant) we think you should know about.
This note has only looked at a single factor that sheds light on the nature of Fujian Minfa Aluminium'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. 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.