Kunshan GuoLi Electronic Technology's (SHSE:688103) Weak Earnings May Only Reveal A Part Of The Whole Picture

The market rallied behind Kunshan GuoLi Electronic Technology Co., Ltd.'s (SHSE:688103) stock, leading do a rise in the share price after its recent weak earnings report. While shareholders may be willing to overlook soft profit numbers, we believe that they should also be taking into account some other factors which may be cause for concern.

View our latest analysis for Kunshan GuoLi Electronic Technology

The Impact Of Unusual Items On Profit

For anyone who wants to understand Kunshan GuoLi Electronic Technology's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥5.8m 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. 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 Kunshan GuoLi Electronic Technology's Profit Performance

We'd posit that Kunshan GuoLi Electronic 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 Kunshan GuoLi Electronic Technology's statutory profits are better than its underlying earnings power. Sadly, its EPS was down over the last twelve months. 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. So while earnings quality is important, it's equally important to consider the risks facing Kunshan GuoLi Electronic Technology at this point in time. You'd be interested to know, that we found 2 warning signs for Kunshan GuoLi Electronic Technology and you'll want to know about them.

This note has only looked at a single factor that sheds light on the nature of Kunshan GuoLi Electronic Technology's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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. 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.

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.