Weak Statutory Earnings May Not Tell The Whole Story For Shenzhen XFH TechnologyLtd (SZSE:300890)

The market wasn't impressed with the soft earnings from Shenzhen XFH Technology Co.,Ltd (SZSE:300890) recently. Our analysis has found some reasons to be concerned, beyond the weak headline numbers.

View our latest analysis for Shenzhen XFH TechnologyLtd

The Impact Of Unusual Items On Profit

To properly understand Shenzhen XFH TechnologyLtd's profit results, we need to consider the CN¥12m gain attributed to 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 that's as you'd expect, given these boosts are described as 'unusual'. If Shenzhen XFH TechnologyLtd doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Shenzhen XFH TechnologyLtd.

Our Take On Shenzhen XFH TechnologyLtd's Profit Performance

Arguably, Shenzhen XFH TechnologyLtd's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Shenzhen XFH TechnologyLtd's statutory profits are better than its underlying earnings power. Sadly, its EPS was down over the last twelve months. 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 while earnings quality is important, it's equally important to consider the risks facing Shenzhen XFH TechnologyLtd at this point in time. For example, we've found that Shenzhen XFH TechnologyLtd has 4 warning signs (1 is concerning!) that deserve your attention before going any further with your analysis.

This note has only looked at a single factor that sheds light on the nature of Shenzhen XFH TechnologyLtd's profit. But there are plenty of other ways to inform your opinion of a company. 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.

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.