Why Shanghai Datun Energy Resources' (SHSE:600508) Shaky Earnings Are Just The Beginning Of Its Problems

A lackluster earnings announcement from Shanghai Datun Energy Resources Co., Ltd. (SHSE:600508) last week didn't sink the stock price. However, we believe that investors should be aware of some underlying factors which may be of concern.

View our latest analysis for Shanghai Datun Energy Resources

How Do Unusual Items Influence Profit?

To properly understand Shanghai Datun Energy Resources' profit results, we need to consider the CN¥33m 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 analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. Which is hardly surprising, given the name. If Shanghai Datun Energy Resources doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current 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 Shanghai Datun Energy Resources' Profit Performance

Arguably, Shanghai Datun Energy Resources' statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Shanghai Datun Energy Resources' true underlying earnings power is actually less than its statutory profit. In further bad news, its earnings per share decreased in the last year. 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 Shanghai Datun Energy Resources as a business, it's important to be aware of any risks it's facing. Be aware that Shanghai Datun Energy Resources is showing 2 warning signs in our investment analysis and 1 of those doesn't sit too well with us...

This note has only looked at a single factor that sheds light on the nature of Shanghai Datun Energy Resources' 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.