Weak Statutory Earnings May Not Tell The Whole Story For Qingdao Eastsoft Communication TechnologyLtd (SZSE:300183)

The subdued market reaction suggests that Qingdao Eastsoft Communication Technology Co.,Ltd's (SZSE:300183) recent earnings didn't contain any surprises. Our analysis suggests that along with soft profit numbers, investors should be aware of some other underlying weaknesses in the numbers.

Check out our latest analysis for Qingdao Eastsoft Communication TechnologyLtd

The Impact Of Unusual Items On Profit

To properly understand Qingdao Eastsoft Communication TechnologyLtd's profit results, we need to consider the CN¥8.0m gain attributed to 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'. If Qingdao Eastsoft Communication TechnologyLtd doesn't see that contribution repeat, then all else being equal we'd expect its profit to drop over the current year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Qingdao Eastsoft Communication TechnologyLtd.

Our Take On Qingdao Eastsoft Communication TechnologyLtd's Profit Performance

We'd posit that Qingdao Eastsoft Communication TechnologyLtd's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Therefore, it seems possible to us that Qingdao Eastsoft Communication TechnologyLtd's true underlying earnings power is actually less than its statutory profit. In further bad news, its earnings per share decreased in the last year. 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. To that end, you should learn about the 3 warning signs we've spotted with Qingdao Eastsoft Communication TechnologyLtd (including 1 which shouldn't be ignored).

Today we've zoomed in on a single data point to better understand the nature of Qingdao Eastsoft Communication TechnologyLtd'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. 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.