Some Investors May Be Willing To Look Past Lingyi iTech (Guangdong)'s (SZSE:002600) Soft Earnings

Lingyi iTech (Guangdong) Company's (SZSE:002600) earnings announcement last week didn't impress shareholders. Despite the soft profit numbers, our analysis has optimistic about the overall quality of the income statement.

Check out our latest analysis for Lingyi iTech (Guangdong)

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Lingyi iTech (Guangdong)'s profit was reduced by CN¥276m, 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. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's hardly a surprise given these line items are considered unusual. Assuming those unusual expenses don't come up again, we'd therefore expect Lingyi iTech (Guangdong) to produce a higher profit next year, all else being equal.

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 Lingyi iTech (Guangdong)'s Profit Performance

Unusual items (expenses) detracted from Lingyi iTech (Guangdong)'s earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Lingyi iTech (Guangdong)'s statutory profit actually understates its earnings potential! On the other hand, its EPS actually shrunk in 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. So while earnings quality is important, it's equally important to consider the risks facing Lingyi iTech (Guangdong) at this point in time. For example, we've discovered 1 warning sign that you should run your eye over to get a better picture of Lingyi iTech (Guangdong).

This note has only looked at a single factor that sheds light on the nature of Lingyi iTech (Guangdong)'s profit. But there are plenty of other ways to inform your opinion of a company. 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.