Weak Statutory Earnings May Not Tell The Whole Story For Shenzhen Sine ElectricLtd (SHSE:688395)

Last week's earnings announcement from Shenzhen Sine Electric Co.,Ltd. (SHSE:688395) was disappointing to investors, with a sluggish profit figure. We did some analysis, and found that there are some reasons to be cautious about the headline numbers.

Check out our latest analysis for Shenzhen Sine ElectricLtd

The Impact Of Unusual Items On Profit

To properly understand Shenzhen Sine ElectricLtd's profit results, we need to consider the CN¥4.8m gain attributed to unusual items. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. 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 Shenzhen Sine ElectricLtd.

Our Take On Shenzhen Sine ElectricLtd's Profit Performance

Arguably, Shenzhen Sine ElectricLtd's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Shenzhen Sine ElectricLtd'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. 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 Shenzhen Sine ElectricLtd you should be mindful of and 1 of these bad boys is significant.

Today we've zoomed in on a single data point to better understand the nature of Shenzhen Sine ElectricLtd'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.

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.