Shenzhen AV-Display's (SZSE:300939) Problems Go Beyond Weak Profit

A lackluster earnings announcement from Shenzhen AV-Display Co., Ltd. (SZSE:300939) last week didn't sink the stock price. Our analysis suggests that along with soft profit numbers, investors should be aware of some other underlying weaknesses in the numbers.

View our latest analysis for Shenzhen AV-Display

How Do Unusual Items Influence Profit?

For anyone who wants to understand Shenzhen AV-Display's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥16m 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, after all, that's exactly what the accounting terminology implies. If Shenzhen AV-Display 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 Shenzhen AV-Display.

Our Take On Shenzhen AV-Display's Profit Performance

Arguably, Shenzhen AV-Display's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that Shenzhen AV-Display's true underlying earnings power is actually less than its statutory profit. Nonetheless, it's still worth noting that its earnings per share have grown at 11% over the last three years. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. So while earnings quality is important, it's equally important to consider the risks facing Shenzhen AV-Display at this point in time. In terms of investment risks, we've identified 2 warning signs with Shenzhen AV-Display, and understanding these bad boys should be part of your investment process.

Today we've zoomed in on a single data point to better understand the nature of Shenzhen AV-Display's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to 'follow the money' and search out stocks that insiders are buying. 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.