Shenzhen Tongye TechnologyLtd's (SZSE:300960) Profits Appear To Have Quality Issues

The recent earnings posted by Shenzhen Tongye Technology Co.,Ltd. (SZSE:300960) 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.

Check out our latest analysis for Shenzhen Tongye TechnologyLtd

The Impact Of Unusual Items On Profit

To properly understand Shenzhen Tongye TechnologyLtd's profit results, we need to consider the CN¥3.7m gain attributed to unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. 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. Which is hardly surprising, given the name. If Shenzhen Tongye 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 Tongye TechnologyLtd.

Our Take On Shenzhen Tongye TechnologyLtd's Profit Performance

Arguably, Shenzhen Tongye TechnologyLtd's statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Shenzhen Tongye TechnologyLtd's 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. 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 want to do dive deeper into Shenzhen Tongye TechnologyLtd, you'd also look into what risks it is currently facing. While conducting our analysis, we found that Shenzhen Tongye TechnologyLtd has 3 warning signs and it would be unwise to ignore them.

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

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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.