Weak Statutory Earnings May Not Tell The Whole Story For Shenzhen Leaguer (SZSE:002243)

Investors were disappointed by Shenzhen Leaguer Co., Ltd.'s (SZSE:002243 ) latest earnings release. We did some analysis, and found that there are some reasons to be cautious about the headline numbers.

View our latest analysis for Shenzhen Leaguer

How Do Unusual Items Influence Profit?

To properly understand Shenzhen Leaguer's profit results, we need to consider the CN¥174m gain attributed to unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. Which is hardly surprising, given the name. Shenzhen Leaguer had a rather significant contribution from unusual items relative to its profit to December 2023. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

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 Shenzhen Leaguer's Profit Performance

As we discussed above, we think the significant positive unusual item makes Shenzhen Leaguer's earnings a poor guide to its underlying profitability. For this reason, we think that Shenzhen Leaguer's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. 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. So while earnings quality is important, it's equally important to consider the risks facing Shenzhen Leaguer at this point in time. Our analysis shows 3 warning signs for Shenzhen Leaguer (1 makes us a bit uncomfortable!) and we strongly recommend you look at these before investing.

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