Earnings Troubles May Signal Larger Issues for Sunshine Global CircuitsLtd (SZSE:300739) Shareholders

The market wasn't impressed with the soft earnings from Sunshine Global Circuits Co.,Ltd. (SZSE:300739) recently. We did some analysis, and found that there are some reasons to be cautious about the headline numbers.

See our latest analysis for Sunshine Global CircuitsLtd

How Do Unusual Items Influence Profit?

For anyone who wants to understand Sunshine Global CircuitsLtd's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥11m 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. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's as you'd expect, given these boosts are described as 'unusual'. If Sunshine Global CircuitsLtd 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 Sunshine Global CircuitsLtd.

Our Take On Sunshine Global CircuitsLtd's Profit Performance

Arguably, Sunshine Global CircuitsLtd's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Sunshine Global CircuitsLtd's true underlying earnings power is actually less than its statutory profit. 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 if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. For example, Sunshine Global CircuitsLtd has 5 warning signs (and 2 which are concerning) we think you should know about.

This note has only looked at a single factor that sheds light on the nature of Sunshine Global CircuitsLtd'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 with significant insider holdings 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.