Impressive Earnings May Not Tell The Whole Story For Shenzhen Zhaowei Machinery & Electronics (SZSE:003021)

Shenzhen Zhaowei Machinery & Electronics Co., Ltd.'s (SZSE:003021) robust earnings report didn't manage to move the market for its stock. Our analysis suggests that this might be because shareholders have noticed some concerning underlying factors.

See our latest analysis for Shenzhen Zhaowei Machinery & Electronics

The Impact Of Unusual Items On Profit

For anyone who wants to understand Shenzhen Zhaowei Machinery & Electronics' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥23m worth of 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. 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'. If Shenzhen Zhaowei Machinery & Electronics doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current 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 Shenzhen Zhaowei Machinery & Electronics' Profit Performance

We'd posit that Shenzhen Zhaowei Machinery & Electronics' 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 Shenzhen Zhaowei Machinery & Electronics' statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 20% EPS growth in the last year. 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 Shenzhen Zhaowei Machinery & Electronics at this point in time. For example, we've discovered 1 warning sign that you should run your eye over to get a better picture of Shenzhen Zhaowei Machinery & Electronics.

This note has only looked at a single factor that sheds light on the nature of Shenzhen Zhaowei Machinery & Electronics' 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 that insiders are buying.

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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.