Sunwoda ElectronicLtd's (SZSE:300207) Promising Earnings May Rest On Soft Foundations

Investors were disappointed with Sunwoda Electronic Co.,Ltd's (SZSE:300207) earnings, despite the strong profit numbers. We think that the market might be paying attention to some underlying factors that they find to be concerning.

View our latest analysis for Sunwoda ElectronicLtd

How Do Unusual Items Influence Profit?

For anyone who wants to understand Sunwoda ElectronicLtd's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥93m worth of unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And, after all, that's exactly what the accounting terminology implies. 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 Sunwoda ElectronicLtd's Profit Performance

We'd posit that Sunwoda ElectronicLtd's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Therefore, it seems possible to us that Sunwoda ElectronicLtd's true underlying earnings power is actually less than its statutory profit. But at least holders can take some solace from the 27% per annum growth in EPS for the last three. 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. If you want to do dive deeper into Sunwoda ElectronicLtd, you'd also look into what risks it is currently facing. In terms of investment risks, we've identified 1 warning sign with Sunwoda ElectronicLtd, and understanding this should be part of your investment process.

This note has only looked at a single factor that sheds light on the nature of Sunwoda ElectronicLtd'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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.