Despite posting some strong earnings, the market for Zhiyang Innovation Technology Co., Ltd.'s (SHSE:688191) stock hasn't moved much. Our analysis suggests that this might be because shareholders have noticed some concerning underlying factors.

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Zhiyang Innovation Technology's profit received a boost of CN¥8.8m in unusual items, over the last year. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And, after all, that's exactly what the accounting terminology implies. Zhiyang Innovation Technology had a rather significant contribution from unusual items relative to its profit 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.

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

Our Take On Zhiyang Innovation Technology's Profit Performance

As we discussed above, we think the significant positive unusual item makes Zhiyang Innovation Technology's earnings a poor guide to its underlying profitability. As a result, we think it may well be the case that Zhiyang Innovation Technology's underlying earnings power is lower than its statutory profit. But at least holders can take some solace from the 28% EPS growth in the last year. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. You'd be interested to know, that we found 2 warning signs for Zhiyang Innovation Technology and you'll want to know about these.

This note has only looked at a single factor that sheds light on the nature of Zhiyang Innovation Technology's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. Some people consider a high return on equity to be a good sign of a quality business. 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.