We Think Shanghai Stonehill Technology's (SZSE:002195) Solid Earnings Are Understated

The market seemed underwhelmed by the solid earnings posted by Shanghai Stonehill Technology Co., Ltd. (SZSE:002195) recently. Along with the solid headline numbers, we think that investors have some reasons for optimism.

View our latest analysis for Shanghai Stonehill Technology

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Shanghai Stonehill Technology's profit was reduced by CN¥14m, due to unusual items, over the last year. 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. Assuming those unusual expenses don't come up again, we'd therefore expect Shanghai Stonehill Technology 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 Shanghai Stonehill Technology.

Our Take On Shanghai Stonehill Technology's Profit Performance

Unusual items (expenses) detracted from Shanghai Stonehill Technology's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Shanghai Stonehill Technology's statutory profit actually understates its earnings potential! And on top of that, its earnings per share increased by 39% 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. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. In terms of investment risks, we've identified 1 warning sign with Shanghai Stonehill Technology, and understanding it should be part of your investment process.

This note has only looked at a single factor that sheds light on the nature of Shanghai Stonehill Technology'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.