Offshore Oil EngineeringLtd's (SHSE:600583) Profits Appear To Have Quality Issues

The market for Offshore Oil Engineering Co.,Ltd's (SHSE:600583) stock was strong after it released a healthy earnings report last week. Despite this, our analysis suggests that there are some factors weakening the foundations of those good profit numbers.

The Impact Of Unusual Items On Profit

For anyone who wants to understand Offshore Oil EngineeringLtd's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥199m worth of 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. And, after all, that's exactly what the accounting terminology implies. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

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 Offshore Oil EngineeringLtd's Profit Performance

Arguably, Offshore Oil EngineeringLtd's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Offshore Oil EngineeringLtd's true underlying earnings power is actually less than its statutory profit. But the good news is that its EPS growth over the last three years has been very impressive. 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 if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. For example - Offshore Oil EngineeringLtd has 1 warning sign we think you should be aware of.

Today we've zoomed in on a single data point to better understand the nature of Offshore Oil EngineeringLtd's profit. But there are plenty of other ways to inform your opinion of a company. Some people consider a high return on equity to be a good sign of a quality business. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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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.