We Think That There Are Issues Underlying SMARTGEN (Zhengzhou) Technology's (SZSE:301361) Earnings

SMARTGEN (Zhengzhou) Technology Co., Ltd. (SZSE:301361) announced strong profits, but the stock was stagnant. We did some digging, and we found some concerning factors in the details.

View our latest analysis for SMARTGEN (Zhengzhou) Technology

The Impact Of Unusual Items On Profit

For anyone who wants to understand SMARTGEN (Zhengzhou) Technology's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from CN¥9.6m worth of unusual items. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. 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. 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 SMARTGEN (Zhengzhou) Technology.

Our Take On SMARTGEN (Zhengzhou) Technology's Profit Performance

Arguably, SMARTGEN (Zhengzhou) Technology's statutory earnings have been distorted by unusual items boosting profit. Therefore, it seems possible to us that SMARTGEN (Zhengzhou) Technology'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. 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 SMARTGEN (Zhengzhou) Technology at this point in time. For example, we've discovered 1 warning sign that you should run your eye over to get a better picture of SMARTGEN (Zhengzhou) Technology.

Today we've zoomed in on a single data point to better understand the nature of SMARTGEN (Zhengzhou) Technology'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 that insiders are buying 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.