Why ShenZhen GAD Environmental Technology's (SZSE:300854) Earnings Are Better Than They Seem

Despite posting healthy earnings, ShenZhen GAD Environmental Technology Co., Ltd.'s (SZSE:300854 ) stock has been quite weak. Along with the solid headline numbers, we think that investors have some reasons for optimism.

View our latest analysis for ShenZhen GAD Environmental Technology

The Impact Of Unusual Items On Profit

To properly understand ShenZhen GAD Environmental Technology's profit results, we need to consider the CN¥12m 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. Assuming those unusual expenses don't come up again, we'd therefore expect ShenZhen GAD Environmental Technology to produce a higher profit next year, all else being equal.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of ShenZhen GAD Environmental Technology.

Our Take On ShenZhen GAD Environmental Technology's Profit Performance

Because unusual items detracted from ShenZhen GAD Environmental Technology's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Based on this observation, we consider it likely that ShenZhen GAD Environmental Technology's statutory profit actually understates its earnings potential! And the EPS is up 5.2% 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 GAD Environmental Technology at this point in time. For example, ShenZhen GAD Environmental Technology has 3 warning signs (and 1 which shouldn't be ignored) we think you should know about.

Today we've zoomed in on a single data point to better understand the nature of ShenZhen GAD Environmental Technology's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. Some people consider a high return on equity to be a good sign of a quality business. 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.