FESCO Group Co., Ltd. (SHSE:600861) announced strong profits, but the stock was stagnant. Our analysis suggests that this might be because shareholders have noticed some concerning underlying factors.

How Do Unusual Items Influence Profit?

For anyone who wants to understand FESCO Group's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥201m 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. 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 that's as you'd expect, given these boosts are described as 'unusual'. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

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 FESCO Group's Profit Performance

Arguably, FESCO Group's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that FESCO Group's true underlying earnings power is actually less than its statutory profit. The good news is that, its earnings per share increased by 60% 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. If you'd like to know more about FESCO Group as a business, it's important to be aware of any risks it's facing. For example - FESCO Group has 1 warning sign we think you should be aware of.

This note has only looked at a single factor that sheds light on the nature of FESCO Group'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. 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.

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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.