Shenzhen Kingdom Sci-Tech's (SHSE:600446) Profits May Not Reveal Underlying Issues

The recent earnings posted by Shenzhen Kingdom Sci-Tech Co., Ltd (SHSE:600446) were solid, but the stock didn't move as much as we expected. We think this is due to investors looking beyond the statutory profits and being concerned with what they see.

View our latest analysis for Shenzhen Kingdom Sci-Tech

How Do Unusual Items Influence Profit?

To properly understand Shenzhen Kingdom Sci-Tech's profit results, we need to consider the CN¥71m 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. And, after all, that's exactly what the accounting terminology implies. We can see that Shenzhen Kingdom Sci-Tech's positive unusual items were quite significant relative to its profit in the year to March 2024. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

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 Kingdom Sci-Tech's Profit Performance

As we discussed above, we think the significant positive unusual item makes Shenzhen Kingdom Sci-Tech's earnings a poor guide to its underlying profitability. For this reason, we think that Shenzhen Kingdom Sci-Tech's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. The good news is that, its earnings per share increased by 40% in 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. You'd be interested to know, that we found 1 warning sign for Shenzhen Kingdom Sci-Tech and you'll want to know about it.

Today we've zoomed in on a single data point to better understand the nature of Shenzhen Kingdom Sci-Tech'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 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.