A lackluster earnings announcement from Jouder Precision Industry (Kunshan) Co., Ltd. (SZSE:300549) 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 Jouder Precision Industry (Kunshan)'s profit received a boost of CN¥4.1m in unusual items, over the last year. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. 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. We can see that Jouder Precision Industry (Kunshan)'s positive unusual items were quite significant relative to its profit in the year to June 2024. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.
Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Jouder Precision Industry (Kunshan).
Our Take On Jouder Precision Industry (Kunshan)'s Profit Performance
As we discussed above, we think the significant positive unusual item makes Jouder Precision Industry (Kunshan)'s earnings a poor guide to its underlying profitability. For this reason, we think that Jouder Precision Industry (Kunshan)'s statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. In further bad news, its earnings per share decreased in the last year. 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. So while earnings quality is important, it's equally important to consider the risks facing Jouder Precision Industry (Kunshan) at this point in time. When we did our research, we found 5 warning signs for Jouder Precision Industry (Kunshan) (2 don't sit too well with us!) that we believe deserve your full attention.
This note has only looked at a single factor that sheds light on the nature of Jouder Precision Industry (Kunshan)'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.
