Shenzhen Zhaowei Machinery & Electronics (SZSE:003021) Strong Profits May Be Masking Some Underlying Issues

The recent earnings posted by Shenzhen Zhaowei Machinery & Electronics Co., Ltd. (SZSE:003021) were solid, but the stock didn't move as much as we expected. However the statutory profit number doesn't tell the whole story, and we have found some factors which might be of concern to shareholders.

View 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¥22m 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. 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, after all, that's exactly what the accounting terminology implies. 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. Therefore, it seems possible to us that Shenzhen Zhaowei Machinery & Electronics' true underlying earnings power is actually less than its statutory profit. The good news is that, its earnings per share increased by 19% in the 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'd like to know more about Shenzhen Zhaowei Machinery & Electronics as a business, it's important to be aware of any risks it's facing. 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. 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.