Shenzhen Huakong Seg's (SZSE:000068) Weak Earnings May Only Reveal A Part Of The Whole Picture

Last week's earnings announcement from Shenzhen Huakong Seg Co., Ltd. (SZSE:000068) was disappointing to investors, with a sluggish profit figure. We did some further digging and think they have a few more reasons to be concerned beyond the statutory profit.

View our latest analysis for Shenzhen Huakong Seg

The Impact Of Unusual Items On Profit

For anyone who wants to understand Shenzhen Huakong Seg's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥453m worth of 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. And that's as you'd expect, given these boosts are described as 'unusual'. Shenzhen Huakong Seg had a rather significant contribution from unusual items relative to its profit to September 2024. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Shenzhen Huakong Seg.

Our Take On Shenzhen Huakong Seg's Profit Performance

As we discussed above, we think the significant positive unusual item makes Shenzhen Huakong Seg's earnings a poor guide to its underlying profitability. For this reason, we think that Shenzhen Huakong Seg's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. In further bad news, its earnings per share decreased in the last year. 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. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. At Simply Wall St, we found 3 warning signs for Shenzhen Huakong Seg and we think they deserve your attention.

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