Shenzhen Sunway Communication's (SZSE:300136) Weak Earnings May Only Reveal A Part Of The Whole Picture

The market rallied behind Shenzhen Sunway Communication Co., Ltd.'s (SZSE:300136) 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.

View our latest analysis for Shenzhen Sunway Communication

How Do Unusual Items Influence Profit?

To properly understand Shenzhen Sunway Communication's profit results, we need to consider the CN¥142m gain attributed to unusual items. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. 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. Which is hardly surprising, given the name. We can see that Shenzhen Sunway Communication's positive unusual items were quite significant relative to its profit in the year to March 2024. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

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 Shenzhen Sunway Communication's Profit Performance

As we discussed above, we think the significant positive unusual item makes Shenzhen Sunway Communication's earnings a poor guide to its underlying profitability. For this reason, we think that Shenzhen Sunway Communication's statutory profits may be a bad guide to its underlying earnings power, and might give investors an overly positive impression of the company. 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. So while earnings quality is important, it's equally important to consider the risks facing Shenzhen Sunway Communication at this point in time. You'd be interested to know, that we found 1 warning sign for Shenzhen Sunway Communication and you'll want to know about it.

Today we've zoomed in on a single data point to better understand the nature of Shenzhen Sunway 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. 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.