Dongguan Development (Holdings)'s (SZSE:000828) Soft Earnings Don't Show The Whole Picture

The market for Dongguan Development (Holdings) Co., Ltd.'s (SZSE:000828) shares didn't move much after it posted weak earnings recently. We did some digging, and we believe the earnings are stronger than they seem.

View our latest analysis for Dongguan Development (Holdings)

How Do Unusual Items Influence Profit?

To properly understand Dongguan Development (Holdings)'s profit results, we need to consider the CN¥398m expense attributed to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And that's hardly a surprise given these line items are considered unusual. Assuming those unusual expenses don't come up again, we'd therefore expect Dongguan Development (Holdings) to produce a higher profit next year, all else being equal.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Dongguan Development (Holdings).

Our Take On Dongguan Development (Holdings)'s Profit Performance

Unusual items (expenses) detracted from Dongguan Development (Holdings)'s earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Dongguan Development (Holdings)'s statutory profit actually understates its earnings potential! On the other hand, its EPS actually shrunk in the last twelve months. 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 if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. Every company has risks, and we've spotted 3 warning signs for Dongguan Development (Holdings) (of which 1 makes us a bit uncomfortable!) you should know about.

This note has only looked at a single factor that sheds light on the nature of Dongguan Development (Holdings)'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.