Weak Statutory Earnings May Not Tell The Whole Story For Shanghai Mechanical & Electrical IndustryLtd (SHSE:600835)

A lackluster earnings announcement from Shanghai Mechanical & Electrical Industry Co.,Ltd. (SHSE:600835) last week didn't sink the stock price. 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 Shanghai Mechanical & Electrical IndustryLtd

How Do Unusual Items Influence Profit?

For anyone who wants to understand Shanghai Mechanical & Electrical IndustryLtd's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥83m 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. Which is hardly surprising, given the name. If Shanghai Mechanical & Electrical IndustryLtd doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

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 Mechanical & Electrical IndustryLtd's Profit Performance

We'd posit that Shanghai Mechanical & Electrical IndustryLtd'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 Shanghai Mechanical & Electrical IndustryLtd's statutory profits are better than its underlying earnings power. In further bad news, its earnings per share decreased in the last year. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. If you want to do dive deeper into Shanghai Mechanical & Electrical IndustryLtd, you'd also look into what risks it is currently facing. At Simply Wall St, we found 1 warning sign for Shanghai Mechanical & Electrical IndustryLtd and we think they deserve your attention.

This note has only looked at a single factor that sheds light on the nature of Shanghai Mechanical & Electrical IndustryLtd'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 that insiders are buying.

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.