We Think East China Engineering Science and Technology's (SZSE:002140) Solid Earnings Are Understated

The market seemed underwhelmed by last week's earnings announcement from East China Engineering Science and Technology Co., Ltd. (SZSE:002140) despite the healthy numbers. We did some analysis to find out why and believe that investors might be missing some encouraging factors contained in the earnings.

View our latest analysis for East China Engineering Science and Technology

How Do Unusual Items Influence Profit?

To properly understand East China Engineering Science and Technology's profit results, we need to consider the CN¥108m expense attributed to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that's exactly what the accounting terminology implies. If East China Engineering Science and Technology doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming 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 East China Engineering Science and Technology's Profit Performance

Because unusual items detracted from East China Engineering Science and Technology's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Because of this, we think East China Engineering Science and Technology's earnings potential is at least as good as it seems, and maybe even better! And on top of that, its earnings per share have grown at 27% per year over the last three years. 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. For example, we've discovered 1 warning sign that you should run your eye over to get a better picture of East China Engineering Science and Technology.

Today we've zoomed in on a single data point to better understand the nature of East China Engineering Science and Technology'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. 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.

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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.