Huaiji Dengyun Auto-parts (Holding)Ltd's (SZSE:002715) Solid Earnings Are Supported By Other Strong Factors

Huaiji Dengyun Auto-parts (Holding) Co.,Ltd. (SZSE:002715) just reported healthy earnings but the stock price didn't move much. Investors are probably missing some underlying factors which are encouraging for the future of the company.

See our latest analysis for Huaiji Dengyun Auto-parts (Holding)Ltd

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Huaiji Dengyun Auto-parts (Holding)Ltd's profit was reduced by CN¥9.2m, due to unusual items, over the last year. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And that's hardly a surprise given these line items are considered unusual. Assuming those unusual expenses don't come up again, we'd therefore expect Huaiji Dengyun Auto-parts (Holding)Ltd to produce a higher profit next year, all else being equal.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Huaiji Dengyun Auto-parts (Holding)Ltd.

Our Take On Huaiji Dengyun Auto-parts (Holding)Ltd's Profit Performance

Unusual items (expenses) detracted from Huaiji Dengyun Auto-parts (Holding)Ltd's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Huaiji Dengyun Auto-parts (Holding)Ltd's statutory profit actually understates its earnings potential! And one can definitely find a positive in the fact that it made a profit this year, despite losing money 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. Case in point: We've spotted 2 warning signs for Huaiji Dengyun Auto-parts (Holding)Ltd you should be mindful of and 1 of them doesn't sit too well with us.

This note has only looked at a single factor that sheds light on the nature of Huaiji Dengyun Auto-parts (Holding)Ltd's profit. But there are plenty of other ways to inform your opinion of a company. 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 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.