Shenzhen AV-Display's (SZSE:300939) Shareholders Have More To Worry About Than Only Soft Earnings

The market wasn't impressed with the soft earnings from Shenzhen AV-Display Co., Ltd. (SZSE:300939) recently. We did some further digging and think they have a few more reasons to be concerned beyond the statutory profit.

See 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¥17m 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 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. Assuming those unusual items don't show up again in the current year, we'd thus expect profit to be weaker next year (in the absence of business growth, that is).

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

We'd posit that Shenzhen AV-Display's statutory earnings aren't a clean read on ongoing productivity, due to the large unusual item. Therefore, it seems possible to us that Shenzhen AV-Display'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. 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 while earnings quality is important, it's equally important to consider the risks facing Shenzhen AV-Display at this point in time. Case in point: We've spotted 1 warning sign for Shenzhen AV-Display you should be aware of.

This note has only looked at a single factor that sheds light on 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 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.