China Quanjude(Group) Co.,Ltd. (SZSE:002186) announced strong profits, but the stock was stagnant. We did some digging, and we found some concerning factors in the details.
The Impact Of Unusual Items On Profit
Importantly, our data indicates that China Quanjude(Group)Ltd's profit received a boost of CN¥5.7m 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. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. Which is hardly surprising, given the name. If China Quanjude(Group)Ltd 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 China Quanjude(Group)Ltd.
Our Take On China Quanjude(Group)Ltd's Profit Performance
Arguably, China Quanjude(Group)Ltd's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that China Quanjude(Group)Ltd's statutory profits are better than its underlying earnings power. The good news is that it earned a profit in the last twelve months, despite its previous loss. 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. While it's very important to consider the profit and loss statement, you can also learn a lot about a company by looking at its balance sheet. We've done some analysis and you can see our take on China Quanjude(Group)Ltd's balance sheet by clicking here.
This note has only looked at a single factor that sheds light on the nature of China Quanjude(Group)Ltd'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.
