Sunward Intelligent Equipment's (SZSE:002097) Profits Appear To Have Quality Issues

Sunward Intelligent Equipment Co., Ltd.'s (SZSE:002097) robust recent earnings didn't do much to move the stock. We think this is due to investors looking beyond the statutory profits and being concerned with what they see.

See our latest analysis for Sunward Intelligent Equipment

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Sunward Intelligent Equipment's profit received a boost of CN¥167m in unusual items, over the last year. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. And that's as you'd expect, given these boosts are described as 'unusual'. Sunward Intelligent Equipment had a rather significant contribution from unusual items relative to its profit to June 2024. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Sunward Intelligent Equipment.

Our Take On Sunward Intelligent Equipment's Profit Performance

As we discussed above, we think the significant positive unusual item makes Sunward Intelligent Equipment's earnings a poor guide to its underlying profitability. For this reason, we think that Sunward Intelligent Equipment's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. On the bright side, the company showed enough improvement to book a profit this year, after losing money 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 Sunward Intelligent Equipment, you'd also look into what risks it is currently facing. To that end, you should learn about the 4 warning signs we've spotted with Sunward Intelligent Equipment (including 2 which are potentially serious).

This note has only looked at a single factor that sheds light on the nature of Sunward Intelligent Equipment'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. 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.