Shandong Taihe Technologies' (SZSE:300801) Soft Earnings Are Actually Better Than They Appear

Shandong Taihe Technologies Co., Ltd.'s (SZSE:300801) stock was strong despite it releasing a soft earnings report last week. We think that investors might be looking at some positive factors beyond the earnings numbers.

Check out our latest analysis for Shandong Taihe Technologies

The Impact Of Unusual Items On Profit

To properly understand Shandong Taihe Technologies' profit results, we need to consider the CN¥40m expense attributed to unusual items. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And, after all, that's exactly what the accounting terminology implies. If Shandong Taihe Technologies doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Shandong Taihe Technologies.

Our Take On Shandong Taihe Technologies' Profit Performance

Unusual items (expenses) detracted from Shandong Taihe Technologies' earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Shandong Taihe Technologies' statutory profit actually understates its earnings potential! Unfortunately, though, its earnings per share actually fell back over the last year. 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. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. Case in point: We've spotted 2 warning signs for Shandong Taihe Technologies you should be aware of.

This note has only looked at a single factor that sheds light on the nature of Shandong Taihe Technologies' profit. But there is always more to discover if you are capable of focussing your mind on minutiae. 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 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.