Earnings Troubles May Signal Larger Issues for Shenzhen Phoenix Telecom TechnologyLtd (SZSE:301191) Shareholders

Despite Shenzhen Phoenix Telecom Technology Co.,Ltd.'s (SZSE:301191) recent earnings report having lackluster headline numbers, the market responded positively. Sometimes, shareholders are willing to ignore soft numbers with the hope that they will improve, but our analysis suggests this is unlikely for Shenzhen Phoenix Telecom TechnologyLtd.

See our latest analysis for Shenzhen Phoenix Telecom TechnologyLtd

The Power Of Non-Operating Revenue

Companies will classify their revenue streams as either operating revenue or other revenue. Generally speaking, operating revenue is a more reliable guide to the sustainable revenue generating capacity of the business. Importantly, the non-operating revenue often comes without associated ongoing costs, so it can boost profit by letting it fall straight to the bottom line, making the operating business seem better than it really is. Notably, Shenzhen Phoenix Telecom TechnologyLtd had a significant increase in non-operating revenue over the last year. Indeed, its non-operating revenue rose from CN¥21.8m last year to CN¥99.7m this year. If that non-operating revenue fails to manifest in the current year, then there's a real risk the bottom line profit result will be impacted negatively. Sometimes, you can get a better idea of the underlying earnings potential of a company by excluding unusual boosts to non-operating revenue.

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

Our Take On Shenzhen Phoenix Telecom TechnologyLtd's Profit Performance

As discussed above, Shenzhen Phoenix Telecom TechnologyLtd's sharp increase in non-operating revenue boosted its profit over the last year, and if that non-operating revenue is not repeated, then the trailing twelve months profit probably isn't as good as it seems. Because of this, we think that it may be that Shenzhen Phoenix Telecom TechnologyLtd's statutory profits are better than its underlying earnings power. In further bad news, its earnings per share decreased in the last year. 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. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. While conducting our analysis, we found that Shenzhen Phoenix Telecom TechnologyLtd has 2 warning signs and it would be unwise to ignore them.

Today we've zoomed in on a single data point to better understand the nature of Shenzhen Phoenix Telecom TechnologyLtd's profit. But there are plenty of other ways to inform your opinion of a company. 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. 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.