Shanghai New World's (SHSE:600628) Solid Earnings Are Supported By Other Strong Factors

Shanghai New World Co., Ltd (SHSE:600628) just reported healthy earnings but the stock price didn't move much. We think that investors have missed some encouraging factors underlying the profit figures.

Check out our latest analysis for Shanghai New World

The Impact Of Unusual Items On Profit

For anyone who wants to understand Shanghai New World's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CN¥29m due to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And that's hardly a surprise given these line items are considered unusual. If Shanghai New World 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 Shanghai New World.

Our Take On Shanghai New World's Profit Performance

Unusual items (expenses) detracted from Shanghai New World's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Shanghai New World's statutory profit actually understates its earnings potential! And the EPS is up 46% over the last twelve months. 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 want to do dive deeper into Shanghai New World, you'd also look into what risks it is currently facing. For example, we've found that Shanghai New World has 2 warning signs (1 makes us a bit uncomfortable!) that deserve your attention before going any further with your analysis.

This note has only looked at a single factor that sheds light on the nature of Shanghai New World's 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. 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.