We Think Guangdong Xiongsu Technology Group's (SZSE:300599) Solid Earnings Are Understated

The market seemed underwhelmed by last week's earnings announcement from Guangdong Xiongsu Technology Group Co., Ltd (SZSE:300599) despite the healthy numbers. We did some digging, and we think that investors are missing some encouraging factors in the underlying numbers.

Check out our latest analysis for Guangdong Xiongsu Technology Group

The Impact Of Unusual Items On Profit

For anyone who wants to understand Guangdong Xiongsu Technology Group's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CN¥12m due to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. 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 Guangdong Xiongsu Technology Group 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 Guangdong Xiongsu Technology Group.

Our Take On Guangdong Xiongsu Technology Group's Profit Performance

Unusual items (expenses) detracted from Guangdong Xiongsu Technology Group's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Guangdong Xiongsu Technology Group's statutory profit actually understates its earnings potential! And one can definitely find a positive in the fact that it made a profit this year, despite losing money last year. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. If you'd like to know more about Guangdong Xiongsu Technology Group as a business, it's important to be aware of any risks it's facing. Our analysis shows 3 warning signs for Guangdong Xiongsu Technology Group (1 doesn't sit too well with us!) and we strongly recommend you look at them before investing.

This note has only looked at a single factor that sheds light on the nature of Guangdong Xiongsu Technology Group'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 that insiders are buying 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.