Shanghai Construction Group's (SHSE:600170) Sluggish Earnings Might Be Just The Beginning Of Its Problems

The subdued market reaction suggests that Shanghai Construction Group Co., Ltd.'s (SHSE:600170) recent earnings didn't contain any surprises. However, we believe that investors should be aware of some underlying factors which may be of concern.

See our latest analysis for Shanghai Construction Group

How Do Unusual Items Influence Profit?

For anyone who wants to understand Shanghai Construction Group's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥997m 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. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. Which is hardly surprising, given the name. 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 Shanghai Construction Group's Profit Performance

Arguably, Shanghai Construction Group's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Shanghai Construction Group's statutory profits are better than its underlying earnings power. 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. So while earnings quality is important, it's equally important to consider the risks facing Shanghai Construction Group at this point in time. Case in point: We've spotted 2 warning signs for Shanghai Construction Group you should be aware of.

This note has only looked at a single factor that sheds light on the nature of Shanghai Construction 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. 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.