We Think That There Are More Issues For Shenzhen AOTO Electronics (SZSE:002587) Than Just Sluggish Earnings

The market rallied behind Shenzhen AOTO Electronics Co., Ltd.'s (SZSE:002587) stock, leading do a rise in the share price after its recent weak earnings report. We think that shareholders might be missing some concerning factors that our analysis found.

Check out our latest analysis for Shenzhen AOTO Electronics

The Impact Of Unusual Items On Profit

For anyone who wants to understand Shenzhen AOTO Electronics' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥8.0m worth of unusual items. While we like to see profit increases, we tend to be a little more cautious when unusual items have made a big contribution. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. Which is hardly surprising, given the name. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

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

Our Take On Shenzhen AOTO Electronics' Profit Performance

Arguably, Shenzhen AOTO Electronics' statutory earnings have been distorted by unusual items boosting profit. Because of this, we think that it may be that Shenzhen AOTO Electronics' statutory profits are better than its underlying earnings power. Sadly, its EPS was down 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. If you'd like to know more about Shenzhen AOTO Electronics as a business, it's important to be aware of any risks it's facing. Every company has risks, and we've spotted 3 warning signs for Shenzhen AOTO Electronics (of which 1 can't be ignored!) you should know about.

This note has only looked at a single factor that sheds light on the nature of Shenzhen AOTO Electronics' 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.