We Think Sichuan Huiyuan Optical Communication's (SZSE:000586) Healthy Earnings Might Be Conservative

The stock was sluggish on the back of Sichuan Huiyuan Optical Communication Co., Ltd.'s (SZSE:000586) recent earnings report. Along with the solid headline numbers, we think that investors have some reasons for optimism.

See our latest analysis for Sichuan Huiyuan Optical Communication

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Sichuan Huiyuan Optical Communication's profit was reduced by CN¥2.8m, due to unusual items, over the last year. 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, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect Sichuan Huiyuan Optical Communication 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 Sichuan Huiyuan Optical Communication.

Our Take On Sichuan Huiyuan Optical Communication's Profit Performance

Unusual items (expenses) detracted from Sichuan Huiyuan Optical Communication's earnings over the last year, but we might see an improvement next year. Because of this, we think Sichuan Huiyuan Optical Communication's earnings potential is at least as good as it seems, and maybe even better! And the EPS is up 9.6% over the last twelve months. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. Every company has risks, and we've spotted 1 warning sign for Sichuan Huiyuan Optical Communication you should know about.

This note has only looked at a single factor that sheds light on the nature of Sichuan Huiyuan Optical Communication'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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

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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.