Shareholders Can Be Confident That Shenzhen Honor Electronic's (SZSE:300870) Earnings Are High Quality

Shenzhen Honor Electronic Co., Ltd. (SZSE:300870) recently posted some strong earnings, and the market responded positively. We did some digging and found some further encouraging factors that investors will like.

View our latest analysis for Shenzhen Honor Electronic

The Impact Of Unusual Items On Profit

To properly understand Shenzhen Honor Electronic's profit results, we need to consider the CN¥27m expense attributed to unusual items. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's hardly a surprise given these line items are considered unusual. If Shenzhen Honor Electronic 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 Shenzhen Honor Electronic's Profit Performance

Unusual items (expenses) detracted from Shenzhen Honor Electronic's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Shenzhen Honor Electronic's statutory profit actually understates its earnings potential! And on top of that, its earnings per share increased by 79% in the last year. 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. To help with this, we've discovered 2 warning signs (1 shouldn't be ignored!) that you ought to be aware of before buying any shares in Shenzhen Honor Electronic.

Today we've zoomed in on a single data point to better understand the nature of Shenzhen Honor Electronic'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.