We Think That There Are More Issues For Wafer Works (Shanghai) (SHSE:688584) Than Just Sluggish Earnings

Wafer Works (Shanghai) Co., Ltd.'s (SHSE:688584) recent weak earnings report didn't cause a big stock movement. We think that investors are worried about some weaknesses underlying the earnings.

See our latest analysis for Wafer Works (Shanghai)

How Do Unusual Items Influence Profit?

To properly understand Wafer Works (Shanghai)'s profit results, we need to consider the CN¥48m gain attributed to unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. Which is hardly surprising, given the name. Wafer Works (Shanghai) had a rather significant contribution from unusual items relative to its profit to June 2024. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Wafer Works (Shanghai).

Our Take On Wafer Works (Shanghai)'s Profit Performance

As we discussed above, we think the significant positive unusual item makes Wafer Works (Shanghai)'s earnings a poor guide to its underlying profitability. As a result, we think it may well be the case that Wafer Works (Shanghai)'s underlying earnings power is lower than its statutory profit. But at least holders can take some solace from the 16% per annum growth in EPS for the last three. 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. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Every company has risks, and we've spotted 3 warning signs for Wafer Works (Shanghai) you should know about.

Today we've zoomed in on a single data point to better understand the nature of Wafer Works (Shanghai)'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 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.