Impressive Earnings May Not Tell The Whole Story For Shanghai Liangxin ElectricalLTD (SZSE:002706)

Shanghai Liangxin Electrical Co.,LTD.'s (SZSE:002706) robust earnings report didn't manage to move the market for its stock. We did some digging, and we found some concerning factors in the details.

See our latest analysis for Shanghai Liangxin ElectricalLTD

How Do Unusual Items Influence Profit?

For anyone who wants to understand Shanghai Liangxin ElectricalLTD's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥49m 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. 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 Shanghai Liangxin ElectricalLTD's Profit Performance

We'd posit that Shanghai Liangxin ElectricalLTD'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 Liangxin ElectricalLTD's statutory profits are better than its underlying earnings power. Nonetheless, it's still worth noting that its earnings per share have grown at 27% over the last three years. 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. If you'd like to know more about Shanghai Liangxin ElectricalLTD as a business, it's important to be aware of any risks it's facing. While conducting our analysis, we found that Shanghai Liangxin ElectricalLTD has 1 warning sign and it would be unwise to ignore it.

This note has only looked at a single factor that sheds light on the nature of Shanghai Liangxin ElectricalLTD'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 that insiders are buying 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.