Why Guangdong Dongfang Precision Science & Technology's (SZSE:002611) Shaky Earnings Are Just The Beginning Of Its Problems

The subdued market reaction suggests that Guangdong Dongfang Precision Science & Technology Co., Ltd.'s (SZSE:002611) recent earnings didn't contain any surprises. Our analysis suggests that along with soft profit numbers, investors should be aware of some other underlying weaknesses in the numbers.

View our latest analysis for Guangdong Dongfang Precision Science & Technology

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Guangdong Dongfang Precision Science & Technology's profit received a boost of CN¥54m 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. 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'. 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).

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Guangdong Dongfang Precision Science & Technology.

Our Take On Guangdong Dongfang Precision Science & Technology's Profit Performance

We'd posit that Guangdong Dongfang Precision Science & Technology's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Because of this, we think that it may be that Guangdong Dongfang Precision Science & Technology's statutory profits are better than its underlying earnings power. Nonetheless, it's still worth noting that its earnings per share have grown at 38% over the last three years. 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. When we did our research, we found 2 warning signs for Guangdong Dongfang Precision Science & Technology (1 doesn't sit too well with us!) that we believe deserve your full attention.

Today we've zoomed in on a single data point to better understand the nature of Guangdong Dongfang Precision Science & Technology's profit. But there are plenty of other ways to inform your opinion of a company. 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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

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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.