The subdued market reaction suggests that Tong Petrotech Corp.'s (SZSE:300164) recent earnings didn't contain any surprises. We think that investors are worried about some weaknesses underlying the earnings.

The Impact Of Unusual Items On Profit

For anyone who wants to understand Tong Petrotech's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥8.2m 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 analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's as you'd expect, given these boosts are described as 'unusual'. We can see that Tong Petrotech's positive unusual items were quite significant relative to its profit in the year to September 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 Tong Petrotech.

Our Take On Tong Petrotech's Profit Performance

As previously mentioned, Tong Petrotech's large boost from unusual items won't be there indefinitely, so its statutory earnings are probably a poor guide to its underlying profitability. For this reason, we think that Tong Petrotech's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. Sadly, its EPS was down over the last twelve months. 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. If you'd like to know more about Tong Petrotech as a business, it's important to be aware of any risks it's facing. While conducting our analysis, we found that Tong Petrotech has 3 warning signs and it would be unwise to ignore these.

Today we've zoomed in on a single data point to better understand the nature of Tong Petrotech'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.