Earnings Troubles May Signal Larger Issues for Guangdong Deerma Technology (SZSE:301332) Shareholders

Investors were disappointed by Guangdong Deerma Technology Co., Ltd.'s (SZSE:301332 ) latest earnings release. We did some further digging and think they have a few more reasons to be concerned beyond the statutory profit.

View our latest analysis for Guangdong Deerma Technology

How Do Unusual Items Influence Profit?

For anyone who wants to understand Guangdong Deerma Technology's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥20m worth of 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. And, after all, that's exactly what the accounting terminology implies. Guangdong Deerma Technology had a rather significant contribution from unusual items relative to its profit to September 2024. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

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 Guangdong Deerma Technology's Profit Performance

As we discussed above, we think the significant positive unusual item makes Guangdong Deerma Technology's earnings a poor guide to its underlying profitability. For this reason, we think that Guangdong Deerma Technology's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. Sadly, its EPS was down over the last twelve months. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. If you'd like to know more about Guangdong Deerma Technology as a business, it's important to be aware of any risks it's facing. In terms of investment risks, we've identified 3 warning signs with Guangdong Deerma Technology, and understanding these should be part of your investment process.

This note has only looked at a single factor that sheds light on the nature of Guangdong Deerma Technology'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. 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.