A lackluster earnings announcement from Zhuhai Kles Technologyco.,Ltd (SZSE:301314) last week didn't sink the stock price. However, we believe that investors should be aware of some underlying factors which may be of concern.

How Do Unusual Items Influence Profit?

For anyone who wants to understand Zhuhai Kles Technologyco.Ltd's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥3.3m worth of unusual items. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. 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. We can see that Zhuhai Kles Technologyco.Ltd'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 Zhuhai Kles Technologyco.Ltd.

Our Take On Zhuhai Kles Technologyco.Ltd's Profit Performance

As we discussed above, we think the significant positive unusual item makes Zhuhai Kles Technologyco.Ltd's earnings a poor guide to its underlying profitability. As a result, we think it may well be the case that Zhuhai Kles Technologyco.Ltd's underlying earnings power is lower than its statutory profit. 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Our analysis shows 2 warning signs for Zhuhai Kles Technologyco.Ltd (1 is a bit concerning!) and we strongly recommend you look at them before investing.

Today we've zoomed in on a single data point to better understand the nature of Zhuhai Kles Technologyco.Ltd's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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. 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 with significant insider holdings to be useful.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.