We Think Hangzhou Prevail Optoelectronic Equipment's (SZSE:300710) Solid Earnings Are Understated

The market seemed underwhelmed by last week's earnings announcement from Hangzhou Prevail Optoelectronic Equipment Co., Ltd. (SZSE:300710) despite the healthy numbers. Our analysis suggests that shareholders might be missing some positive underlying factors in the earnings report.

Check out our latest analysis for Hangzhou Prevail Optoelectronic Equipment

The Impact Of Unusual Items On Profit

Importantly, our data indicates that Hangzhou Prevail Optoelectronic Equipment's profit was reduced by CN¥2.5m, 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. 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. If Hangzhou Prevail Optoelectronic Equipment doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Hangzhou Prevail Optoelectronic Equipment.

Our Take On Hangzhou Prevail Optoelectronic Equipment's Profit Performance

Unusual items (expenses) detracted from Hangzhou Prevail Optoelectronic Equipment's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Hangzhou Prevail Optoelectronic Equipment's statutory profit actually understates its earnings potential! And it's also positive that the company showed enough improvement to book a profit this year, after losing money last year. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. You'd be interested to know, that we found 2 warning signs for Hangzhou Prevail Optoelectronic Equipment and you'll want to know about them.

This note has only looked at a single factor that sheds light on the nature of Hangzhou Prevail Optoelectronic Equipment'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 with high insider ownership.

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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.